Vacant Retail, a New Venue for Co-Working

Co-working is breathing new life into obsolete and vacant retail, and giving landlords some relief. According to a new report from JLL, co-working companies leased a combined 75,000 square feet of vacant retail spaces in Los Angeles last year. Glendale, Santa Monica and Central Los Angeles were key markets were co-working operators turned to retail spaces as a new venue for space.

“The Millennial generation is the largest workforce in the country today,” Peter Belisle, market director at JLL, tells GlobeSt.com. “They have continuously stressed the importance of work life balance. Vacant retail spaces are excellent choices for co-working tenancy because of the close proximity to city center amenities. Particularly in Los Angeles, workspaces have also become more casual working environments. Although major corporations have been filling offices in these spaces, the environment itself appears to be countercultural with renegade slogans and unusual designs.”

Retail spaces are actually a great fit for co-working, especially obsolete or vacant spaces that aren’t in demand by traditional retailers. Generally, retail centers are centrally located and offer amenities to co-working users. “Retail spaces that offer co-working offices allow employees to easily walk from their desk to a wide range of restaurants and shopping during their lunch hour,” says Belisle. “From an aesthetic standpoint, retail spaces often have more interesting architectural designs than the typical office building structure. Retail interiors such as higher ceilings, huge bay windows, and other features are more psychologically appealing to people who enjoy natural sunlight and beautiful interiors.” Demand for co-working space is growing, especially from creative and media companies. This demand will continue to grow as major companies sign up for co-working spaces in addition to their standard office spaces. According to the JLL report, Legal Zoom, Vans,and Beachbody are among the companies that are co-working users. “Just gauging demand by the large players, Netflix recently took the entirety of the Academy on Vine complex. The Hackman Capital Project at Culver Studios is also fully leased and will be occupied by another large technology company’s new media division upon its completion in early 2021,” says Belisle. “Additionally, a social media giant took the balance of Tishman Speyer’s Brickyard in Playa Vista, bringing the asset to full occupancy.”

Retail landlords are quickly acclimating to the new trend, in order to fill vacancies and take advantage of a new market demand for space. Macerich, for example, has announced plans to convert a vacant mall in Los Angeles into a shared workspace. Other landlords will likely follow suit. For owners looking to capitalize on this trend, Belisle recommends thinking out of the box. “The first step in finding these users is for retail owners to think outside the box of traditional retail usage,” he says. “Next, if retail owners are looking to fill spaces with co-working users, they should try to make the space as empty as possible. The co-working companies take care of the buildout, but they prefer beginning with a more minimalist interior. In conversation with these tenants, they expressed interest particularly in the 30,000 to 50,000 square feet space.”

Landlords aren’t the only beneficiaries of this trend. Co-working users will also see lower rents in retail spaces compared to a traditional office building. In the fourth quarter, office market rents were $3.57 per square foot, full service, while retail rents were $2.69 square foot on average this quarter. Belisle estimates that users could save $0.88 per square foot leasing space in a retail center. “Co-working in retail spaces across much of Los Angeles can potentially offer savvy tenants better value per square foot than co-working space in traditional office. These co-working companies can then potentially offer more attractive cost savings on to their subtenants, maximizing value for everyone involved.”