Co-Working Groups Expand San Diego Footprint

Co-working groups are expanding in San Diego, and it is helping to drive some of the office leasing activity in the third quarter. According to the third quarter report from Newmark Knight Frank, co-working company Spaces signed a 33,000-square-foot lease in Downtown San Diego in the third quarter, while the firm as well as WeWork have continued to expand throughout the year. With venture capital increasing in San Diego, co-working companies are likely to continue to expand to support growing companies and start ups.

“Co-working is a large movement not only in San Diego, but across the country. We have had co-working in San Diego for a very long time in the traditional sense, with companies that wanted to rent individual private offices,” Christopher P. High, senior managing director at NKF, tells GlobeSt.com. “Now, that market has changed to a shared spaces with companies like WeWork. These models are looking to get larger companies and accommodate more head count. We have seen this trend across San Diego.”

While co-working space is rising in popularity, High says that the model offers a different set of services to office users and hasn’t impacted direct leasing activity. “What many don’t realize is that co-working companies are taking smaller footprints compared to larger gateway cities,” he says. “When they take 40,000-square-foot chunks, they are very impactful to the market in that it is creating a release valve to the direct leasing market. They are providing more flexibility of lease terms, growth and some capabilities that direct leases can’t allow. For that reason, co-working has actually complemented a lot of the direct space in larger submarkets, like Downtown San Diego and UTC. In those markets, landlords want longer term leases, and the co-working provides the opportunity for flexibility.”

As a result, co-working is actually complementary to the direct leasing space. It could help to support growing companies and attract new companies to the market. Landlords, initially hesitant to lease space to co-working groups because of the membership structure, are warming up to co-working operators as tenants. “Landlords are very open to those uses, especially because there is the complementary use,” says High. “I think some of these companies might start in a co-working space and grow up into a direct lease in the building, and that is something that landlords can benefit from.”

At the moment, co-working groups haven’t has an impact on direct leasing activity, but High says that landlords may start building more flexible options into their leases as well, to remain competitive. “Because co-working companies occupy such a small footprint, compared to the size of the market, it hasn’t negatively impacted any of the direct leasing market. Who is to tell in the next five-to-10 years if that changes,” he adds. “Landlords might add flexibility to the lease term than they previously would have in order to accommodate tenants looking for shorter terms.”