Co-Working Has Positive Impact on Direct Leasing

Co-working and flexible office space providers are growing in popularity, and there is a lot of concern over how this new office segment will impact office-leasing activity. However, Patrick Amos at CBRE, says that co-working operators today are actually a net positive for office leasing activity. In general, there has been no impact on the direct leasing of larger operators and major users of office space.

“At the moment, co-working seems to have a net positive impact on the office leasing market, however, there are always fears that the flexible nature of co-working deals will drive tenants from signing long-term commitments,” Amos, an SVP at CBRE, tells GlobeSt.com. “While that may be the case for smaller users, we have not seen this materially impact the decisions of larger occupiers. Many of the companies that are currently using co-working as a ‘test’ for the Los Angeles market, will likely roll into more permanent office space solutions.”

While the market has yet to impact direct leasing, the space is rapidly growing. Today, there are 50 operators competing in the market, and office landlords have recently joined the niche market. “The co-working landscape is rapidly evolving and expanding,” says Amos. “While WeWork and Spaces were the first two groups to embark on big expansion plans in the Los Angeles area, other high-quality operators are starting to make inroads as well. Industrious has recently been in expansion mode and, just last week, Knotel announced their first offering in the Los Angeles area, with a lease in Downtown Santa Monica.”

In general, the players include large and small operators, niche operators, hospitality, executive suite operators and landlord-run platforms. Despite the entry of new co-working companies, large operators running a multi-city platform, like WeWork, continue to account for the majority of co-working activity. This is especially true in major cities. “While there may be more than 50 operators looking to differentiate themselves, we still see the most activity with multi-city operators as the demand within co-working begins to shift from smaller, entrepreneurial companies to “enterprise” solutions for larger corporations,” explains Amos.

In Los Angeles, however, smaller co-working operators are currently testing the market for growth potential. They are targeting smaller entrepreneurial groups. “We are seeing many users with little or no footprint in the Los Angeles area look to co-working’s enterprise-style solutions as a way to “test” the market for future expansion with limited commitment and up-front capital,” says Amos.