Co-working not just for startup bros anymore
LOS ANGELES — Co-working is often more pleasant these days than putting in eight hours at a traditional office.
If you’d prefer a work space that looks like a chic hotel lobby with waiters at your service, that can be arranged.
Want to be around other women in a cabana on an outdoor terrace? There’s a place in West Hollywood for you.
Is your goal to hang with other creative types? There are co-working clubs that want you as a member.
But while the offices strive to be oases of fellowship, the co-working business is more like a free-for-all.
Co-working offices emerged a decade ago as offbeat, bare-boned affairs that served startups and the self-employed of the emerging gig econo
my. But now their appeal has broadened even to mainstream companies looking for the flexibility to ramp up or wind down operations as quickly as situations demand. Other big tenants just want to avoid the hassle of setting up and maintaining their own offices.
And as co-working has evolved and its appeal has proved more than a fad, a rush of startups has joined the competition, including one from the real estate services industry, which has long had a near monopoly on leasing office space.
The new companies are driven both by opportunity and competition — specifically, the ravenous reach of WeWork, the co-working pioneer that has spent freely to lock up market share and shows no signs of slowing.
WeWork has been willing to absorb huge losses as it follows the model of getting big before getting profitable — best epitomized by ridehailing giant Uber, which raised $8.1 billion in its recent initial public offering even though its total operating losses exceeded $10 billion over the last three years.
The two companies share a common lead investor — Japan’s SoftBank Vision Fund, itself pumped up by Saudi Arabia’s huge sovereign wealth fund.
And questions swirl about whether Uber or WeWork will ever make a profit.
And WeWork could be vulnerable in a downturn.
But its competitors can’t assume that the market will inevitably humble WeWork.
It is changing the nature of the office market, said analyst Steven Kurtz of accounting firm BDO, who has tracked the growth of co-working.
WeWork, which started out nine years ago in New York with six floors in a SoHo building, now has more than 400,000 members paying for access to 45 million square feet worldwide.
The company has gobbled up about half of the 4.5 million square feet now devoted to co-working in the Los Angeles area, said Peter Belisle, Southwest director of real estate brokerage JLL.
In addition to the three floors it occupies in the Pacific Design Center’s Red Building, an expensive trophy property in West Hollywood, WeWork recently leased 45,000 square feet in the center’s Green Building.
It’s packed with recording rooms, photo studios, makeup rooms, casting rooms and other facilities for the entertainment industry. Members include Brian Grazer and Ron Howard of Imagine Impact, filmmaker Kevin Smith and actors Anna Faris and Topher Grace.
Rivals are offering their own unique versions of co-working space, which Belisle predicts will double in Los Angeles over the next three to five years.
One of the most highprofile new entries is the Wing, a New York company founded by two female entrepreneurs that has a San Francisco outlet and recently opened in West Hollywood. It tailors its offices and services to women’s needs and preferences.
The Wing also offers “support circle” meetings to talk about parenting issues, mental health, physical illness and recovery from addiction, as well as other programs.
It’s just one of the latest crop of co-working companies offering events, meetings, lectures and other programs as key selling points as they look to differentiate themselves from one another — and from conventional office landlords focused on keeping the lights on and the lobby clean and secure.
WeWork may have set the pattern by hosting happy hour parties and TED Talks, and it’s continuing to try new things.
Even private clubs that primarily offer posh spots to do business deals, hang out and entertain clients are getting further into the business. Soho House in West Hollywood is planning a SoHo Works offshoot offering 24-hour co-working offices.
The level of tenant pampering being instigated by co-working providers has caught the attention of landlords, who are upping their game, said real estate executive Martin Caverly of Los Angeles landlord and developer Lowe.
Building owners may do something as simple as turning unused lobby space into a coffee bar, or team up with supportservice firms such as Convene that provide co-working space while also offering hospitality services to the entire building.
In its own space, Convene built plush meeting rooms and dining spaces that building tenants can rent for events they can’t host in their own digs.
Convene also offers co-working space for individual contractors, but most of it is designed to serve midsize companies in need of temporary quarters.
“We’re the business class of co-working,” said Ryan Simonetti, CEO of Convene, which sometimes shares revenue with its landlord partners.
The emergence of coworking space as a popular office category poses some financial risks for landlords, according to analysts at Green Street Advisors.
By packing people in more densely than conventional offices, coworking is expected to reduce overall office demand in the country as much as 3% by 2030, in an industry accustomed to growth, a recent report by Green Street said.
Co-working operators may also snag tenants that would otherwise sign directly with a landlord. Landlords, who like to lock in tenants for a decade or more, will feel pressure to offer more short-term leases to compete with the easy-inand-out options offered by co-working operators.
Tishman Speyer, one of the world’s largest office landlords, is doing just that.
The New York company has opened co-working offices at a building it owns in Beverly Hills and is expanding the concept, called Studio, at other properties in major U.S. markets as well as Europe and South America.
The company said it was moved to open more co-working offices after all 35,000 square feet in its first Studio in Rockefeller Center in New York were leased within five months.
Co-working companies make money on the difference between what they pay landlords for the large chunks of space they need — typically on leases of 10 years or longer — and what they make by charging a premium for deluxe space or putting more tenants into close quarters.
Either way, the trend has caught on because tenants love the flexibility of renting space on a monthly, weekly or even daily basis.
But although that has proved successful amid a favorable office market that has been on the upswing since 2013, it has not been tested in a downturn.
No downturn is on the immediate horizon, but a sharp pullback could sting WeWork, other co-working sites and their landlords if rents were to drop and tenants — with no long-term leases to tie them down — leave for cheaper space.
For now, though, WeWork is continuing its expansion, though it recently has created a parent company called the We Co. as it diversifies into other businesses.
Kurtz, of BDO, says that co-working has successfully disrupted the office market and is not going away.
“The modern co-working companies,” he said, “are addressing the pain points of traditional office leasing and changing the way people are leasing space.”