CAN WEWORK WORK?
Coworking has boomed in Houston, but the model may need tweaking.
Coworking spaces and other flexible work environments where tenants can rent desks or offices by the month occupy more than 1.4 million square feet in buildings throughout the Houston area, three times as much as they did in 2010, new data show.
But amid recent turmoil at WeWork, the high-flying coworking operator that canceled its IPO and ousted its CEO amid the company’s massive devaluation, observers are asking: Will coworking continue to boom?
It could, but not with the WeWork model, said Andrew Segal, chairman and CEO of Boxer Property, a Houston-based real estate company with more than 15 million square feet of commercial real estate nationwide.
WeWork leases big blocks of office space from landlords, builds out high-end spaces with expensive finishes and then subleases the space to freelancers, entrepreneurs and larger companies. It’s now the country’s most dominant flexible space operator in terms of size and growth, with nearly 11 million square feet added since mid-2018, according to a report from commercial real estate firm CBRE.
But Segal, whose company offers coworking space in its buildings, said the business model that propelled the company is flawed because it creates layers of redundant administrative operations.
“It’s like operating a building in a building,” he said. “You have to integrate the management of coworking space with the management of the building. We’re doing it all in one system. The management of the building is also the management of the coworking space. The leasing of the building, the maintenance, it’s all the same.”
As Houston’s startup community has grown and more locals work independently and remotely, coworking options have flourished.
Still, it’s a fraction of the local market, representing less than 1 percent of the total office space inventory in Houston, according to the CBRE report.
The largest local player is Regus, an older operator that controls almost half of the flexible office space here with 707,000 square feet in 43 locations. WeWork occupies 197,000 square feet in three locations. The company just signed up for its fourth, in a downtown skyscraper owned by Hines, which recently launched its own coworking business.
Other local providers include Spaces, Firmspace, WorkSuites and Lifetime. Boxer has 434,531 square feet of its so-called Boxer Workstyle space in Houston and 284,540 square feet in the pipeline.
Flexible office space, coffee and food service have become must-have building amenities, Segal said.
“The coworking space has amenities used by the other tenants,” Segal said. “Big tenants who need other space temporarily get priority. We’re offering them a huge service giving them access to desks, meeting rooms, events. So when you integrate it into the building it just becomes more valuable to everything.”
In all, Houston now has 20 flexible office space operators in 70 locations throughout downtown, west Houston, The Woodlands and elsewhere, according to CBRE’s data.
CBRE estimates that by 2030, flexible space could account for 13 percent — or nearly 600 million square feet — of total U.S. office inventory.
Today, it accounts for just 2 percent of total inventory, despite growing 39 percent last year.