March 21, 2019
The shared work space model has grown exponentially over the past few years. One question asked often is what the alternatives are and what happens when a company outgrows the standard shared work space environment. As companies grow, they often want space that provides more branding, more room for employees and an environment that allows for more focused work. Here are three alternatives to the traditional shared work space model:
Traditional Landlord Speculative Suites
Spec suites, sometimes referred to as pre-built suites, are offices that are designed and built by the landlord. They cater to tenants that need move-in-ready space that don’t have specific design requirements. Spec suites are the least expensive option on a rentable square foot basis, and the tenant can negotiate terms directly with the building owner.
While the low cost is attractive, these suites offer little flexibility, limited service and likely require the assistance of a good real estate adviser. Landlords typically require a minimum of three- to five-year lease terms, much longer than most shared work space providers. The tenant will need to pay out of pocket for furniture and IT equipment/services, which can offset the lower monthly rent upfront. Lastly, the shared amenity space offered by these suites is limited and varies significantly by building.
Landlord Headquarters Suites
These suites are similar to landlord spec suites but are built around a shared amenity on the same floor. They are typically 1,500 to 4,000 square feet, and leases are signed directly with the building owner. A few operators that currently offer this type of flex office space are Columbia Property Trust, Boston Properties and Nuveen.
These headquarters suites are slightly more expensive than the traditional spec suite but offer common area amenities that are very similar to those found in traditional coworking spaces. Landlords are often much more willing to accept shorter lease terms for these suites and usually include shared Wi-Fi and coffee service. Like spec suites, the tenant will need to pay out of pocket for furniture and IT equipment/services. However, not all buildings have headquarters suites, so offerings may be limited to certain buildings or parts of the city. Limited availability means tenants may face inconsistent quality, and it may be harder to find a suite that works for their brand.
Third-Party, White-Label Headquarters Suites
These suites function like landlord spec suites but are fully serviced by a third-party operator and offer access to shared amenities such as additional conferencing space. A few operators in this shared work space model are Knotel, WeWork and Cove.
These suites offer flexible lease terms, furniture and are fully serviced. Tenants just need to move in, pay the monthly rent and the rest is handled by the operator. For example, at CoveHQ in Washington, D.C., tenants have access to CoveHQ staff, IT infrastructure, and proprietary software. Clients also have a dedicated community manager who oversees the daily operations and helps plan and coordinate company events, board meetings, and more. These stand-alone suites allow tenants to custom brand their space.
Of course, the better level of customization and service comes with a higher monthly rent. These operators charge 1.5 to two times above the typical rental rates within the building. Tenants often find that the additional rent premium is offset as they can significantly reduce costs for IT consultants, printing services and office management.
The coworking space industry has significantly changed the office space landscape over the past 10 years. Both landlords and third-party providers have evolved their offerings to provide tenants more amenities in highly designed environments and flexible lease terms. These new flexible work space options can help them recruit and retain employees while also allowing them to adapt as their businesses evolve. However, the sheer volume of providers and structures is constantly changing and can be overwhelming. The best way to navigate the various options is to partner with a local real estate expert to find the best solution on the market.
George Vogelei specializes in landlord representation in lease transactions for institutional and private owners of commercial real estate throughout the Washington, D.C., metro.