coworking-space

|

The stability and future of co-working office space in the realestate market has long been debated, and the coronavirus crisis hasmore squarely focused industry executives to question short- andlong-term prospects.

|

The COVID-19 pandemic ushered in historic double-digitunemployment claims, and furloughs and other cost-cutting measureshave cut across professional industries. Local, state and federalauthorities instituted broad guidelines limiting social contact,measures that are counter to shared workspace.

|

"I don't think there's any doubt that it's going to be achallenging industry during the term of this recession," OwenThomas, CEO of Boston Properties, said on the company'sfirst-quarter earnings call. "That being said, I do think long-termthere is a role and a place for shared workspace in the real estatemarket."

|

Thomas said some companies "like the flexibility and the speedto market of that product" and he asserted that he didn't think theco-working model was going away. He said larger companies that"will continue to want to procure a small percentage of their spaceon a short-term basis" will drive demand. He added that there couldbe consolidation in the co-working sector.

|

"I think that the industry over the long-term will still bearound. But in the short-term, it's challenged and clearly there islimited growth, probably contraction, amongst the co-workingoperators," Thomas said.

|

Boston Properties president Doug Linde predicted "there's noquestion" that some coworking operators would reduce the number oflocations they're leasing. He questioned whether those co-workingspaces will be amenable, as configured, to any newinstallation.

|

"Now, that doesn't mean that it can't be retro fitted, with thereasonable amounts of capital put into it to make it veryfunctional," Linde said. "But the landlords are going to have tomake those decisions as to whether or not they want to spend themoney to redo those types of spaces because obviously, they wereconstructed from a different kind of a utility."

|

In some major markets, Linde said, some shared workspace "willcome back and that we will have to deal with that from a supplyperspective." He said New York "is going to have more of an issuewith the number of installations that are there. And then, clearly,some of the other markets where the co-working flexibility asoperators have had a larger proportion of the absorption are goingto have some impact."

|

Indeed, signs are plentiful about coworking's currentstruggles.

|

"With the spaces now inaccessible, many [cowork] tenants arestopping rent payments even if their lease agreements don't includea fully articulated force majeure clause," Alex Cohen, a realestate advisor at Compass, told Marketplace last month. He added: "At the end ofthe current crisis, given, at least short-term, severe economicuncertainty, I expect new and renewed commitments to coworkingspace to be dramatically off original forecasts."

|

And Avison Young senior consultant Michael Kloppenburgsaid at a NAIOP Advantage Series webinar last monththat "due to the structure of most coworking deals with landlords,primarily long-term leases, and the short-term nature of theirclient agreements, there is significant cash-flow exposure."

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Mike Scarcella

Mike Scarcella is a senior editor in Washington on ALM Media's regulatory desk. Contact him at [email protected]. On Twitter: @MikeScarcella. Mike works on a slate of newsletters: Supreme Court Brief | Higher Law | Compliance Hot Spots | Labor of Law.