SAN FRANCISCO—“Commercial real estate is ahugely inefficient industry given its size. Companies are forced tosign a long-term lease based on a prediction of what their longterm requirements are going to be.” That is according toDuncan Logan, CEO and founder ofRocketSpace, a San Francisco-based technologycampus that offers shared work space for startups. We recentlyspoke with Logan on the concept of office-as-a-service, which hasgrowth something like 40% since 2011.

| I know that in San Francisco,office-as-a-service has grown significantly and now accounts foralmost 1% of all commercial real estate (approx. 700,000 squarefeet). Tell me a bit about this shift from independently ownedoffice space to the office-as-a-service model and how your firm isinvolved.


Duncan Logan: People used to have togo to the office to access systems, files and to interact withcoworkers. This is no longer the case. Work today is accessibleremotely, giving employees and employers far more options when itcomes to office space.


At the same time, we are witnessing great efficiencies in the"as-a-service" model. Software-as-a-Service allows one central teamto maintain and support a system for millions of customers andInfrastructure-as-a-Service offers far greater flexibility andscale than hosting one's own servers. Both of these offerings arecausing a shift from a CAPEX expenditure to the OPEX model. Nocompany wants to own servers, cool them, support them, etc. theyjust want to use the processing power. I believe it's the same forreal estate. Companies don't want to lock up capital in deposits,furniture, security systems and build out costs. They would bebetter off spending that money on marketing or productdevelopment.


Additionally, commercial real estate is a hugely inefficientindustry given its size. Companies are forced to sign a long-termlease based on a prediction of what their long term requirementsare going to be. If the company plans to grow, chances are theywill have excess capacity for the first few years. Alternatively,if the company grows faster than expected, they could findthemselves locked into a lease that's too small. Companies are morefluid today than ever before, scaling up and down as demand fortheir product or service shifts. The customer wants flexibilityfrom an industry built around rigidity.
Real estate will be slow to change to the new needs of the customerbecause it is financed on long-term, credit worthy predictablerevenue streams, but that will change eventually.

| I know you work on shared work spacefor startups and have more than 600 desks and 170 tech startups onyour campus. Can you tell me how shared work space cansignificantly cut costs and what makes it sobeneficial?


Logan: The sharing economy ishighlighting how inefficient we are with so much of what we own.Cars spend 90% of their time parked and boardrooms spend 90 percentof their time empty, or half empty. If you break downOffice-as-a-Service into parts, you can see the benefits of ashared economy. Meeting rooms, phone systems, kitchen, security,Internet, furniture, reception, etc.—all of these shared resourcesspread the costs that each individual company would have to addressotherwise. While sharing these services is a major perk, thebiggest benefit is that companies only have to pay for the spacethey need today. They also become part of a community.

| What are some of the challengesstartups can avoid by using shared workspace instead of gettingtheir own office space?


Logan: Most startups are notprofitable on day one. I would challenge any startup CEO who feelsit is more beneficial to spend money on securing, fitting out andequipping an office over spending that money on marketing,product development or other activities that drive sales.
There are valid arguments that a great workspace attracts talent,and that it's tricky to build culture in a coworking space, butcoworking is rapidly evolving. With the modern Office-as-a-Servicemodel, companies can often obtain enough privacy to build a greatspace and a culture that will help attract talent.
Also worth noting, building out an office space can be hugelydistracting, frustrating and risky for a business. Most startupentrepreneurs are novices at this, and what should be simple costscan easily run over budget. It takes time and skill to get up tospeed on how to manage such a project.

| How is coworking becoming a viableoption for companies larger than the 3-5 personstartup?


Logan: I think many companies arestarting looking at a "Hub and Spoke" model. The “hub” may be theirhead office for which they'll make a long-term commitment. They'llalso spend money on building it out so that it represents theirbrand and defines their culture. As the company grows, they willexpand to "spokes" in new locations and new markets. It is toughfor a company to predict the size or success of a spoke early on,so this is where a flexible Office-as-a-Service model works reallywell.


At RocketSpace, we have seen this a lot. We've had "spokes" fromcompanies like Spotify, Zappos, Supercell, Achievers and Hootsuitein recent years. All were large companies using a flexible realestate model to start building a presence in San Francisco.

| In your opinion, what does it take tomake coworking successful?


Logan: As more coworking optionsbecome available, people need to choose a space, not because of thereal estate, but because of the community and services that itoffers. I think it's dangerous to try to be all things to allcustomers, so even coworking spaces will need to become tailored tothe customers that they want to service. For example atRocketSpace, we are focused specifically on high-growth technologystartups and creating an environment that fits the needs of thosecompanies.

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Natalie Dolce

Natalie Dolce, editor-in-chief of and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel,, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including and Museums New York magazine.