Co-working and the Rapidly Changing Office Landscape
The anxiety of the death of retail has given way to the retail renaissance. Experiential retail draws the shopper in for entertainment, pop-up stores capture the shoppers’ curiosity as they stroll past a storefront or see their friends’ posts on Instagram, and showroom retail gives the hesitant online shopper the confidence to consummate a purchase. Now co-working, the innovation that is rapidly changing the office landscape, is headed for urban and suburban malls, walkable storefronts and other space previously only used by retail tenants. JLL is predicting co-working space in retail properties will grow at a rate of 25% annually through 2023 to reach 3.4 million square feet in the U.S.
While the retail industry is teaming with excitement about the arrival and growth of co-working in retail spaces, landlords should understand the great diversity in the brands and structures of co-working companies, to make sure a particular co-working tenant is compatible with their property and tenant mix.
First, co-working brands have a variety of belief systems, and Curbed has even compared them to the social clubs of a hundred years ago. For example, within the submarket of women-only membership co-working companies operating in San Francisco alone, there is The Assembly (a wellness-oriented clubhouse), Radiant (for entrepreneurs), Double Union (targets hackers), The Wing (values female empowerment and gender equity), and The Ruby (for creative arts and letters-focused work). Outside of this submarket, there are many more co-working brands, including LGBTQ focused co-working companies, co-working companies hyper-focused on productive work space, and, of course, the co-working companies that have been characterized as fraternities (which have possibly inspired certain of these other varieties). Landlords may want to consider a co-working company’s brand when considering whether it fits well next to a retailer with a particular focus, such as a yoga studio or a sports bar.
Second, co-working companies have very different structures. Some companies like Spacious operate a pop-up co-working space in restaurants during the day before the restaurant opens for dinner. Some co-working companies actually have retail space within the co-working space (this model is often used by retail startups hoping for access to target shoppers). Still other co-working companies have no retail component to their physical space, but are located in retail centers, urban neighborhoods or malls because the geographic locations of the retail spaces are desirable and in demand. Therefore, Landlords might consider and evaluate different co-working tenants based on whether their goal is to simply fill vacant or underutilized space or rather to increase foot-traffic during off-peak hours.
While co-working is predicted to spread like fire in retail spaces, there are still many unknowns. JLL has found that 54.7% of co-working spaces are located in the suburbs, but suburban shopping centers are notorious for having declarations recorded against the property prohibiting office use. Amending such declarations may require tenant consent and could impact the timeline of signing up a co-working tenant. Owners of new shopping centers should carefully consider the language of its prohibited use provision contained in any declaration or covenant burdening their property to permit co-working tenants (if they so desire).
Another unknown is whether co-working foot traffic is good foot traffic for the retail tenants in a center. In a New York Times article on Spacious (the co-working company that operates in restaurants during the day), one Spacious member commented that he avoids the restaurants he works in when it’s time to eat, because they feel too much like work. However, that’s not to say that the same member wouldn’t pop into a clothing retailer after work to pick up a new article of clothing for an event that evening.
Although there are still many unknowns, co-working in retail spaces generally is expected to continue to grow. Over 40% of employed U.S. workers work remotely at least some of the time, so there is a demand for co-working spaces as many workers try to escape the isolation of working from home but don’t have the option of working in an employer-provided space. With such a great variety of co-working brands and structures, the question is not whether co-working will continue to grow and thrive in retail settings, but which brands and structures of co-working will be the winners in this arena.