Co-working space, flexible offices,
hot-desking, shared-open offices, communal office space – just a few
buzzwords used to describe the latest trend to hit the office market that is
appealing to tenants such as freelancers and startups because it provides
flexible workspace and flexible lease terms. It’s also beneficial to larger
companies in terms of “swing” space, providing easy options for the companies to
ramp up or downsize, as needed. As the momentum continues, co-working companies
will ultimately compete for supremacy. They will take on more space than demand
warrants -- which may lead to a collapse, leaving a few survivors. Building
owners need to be cautious about having too much exposure to co-working
locations as tenants.
The new buzzwords are gathering a lot of
attention, but the concept has been around for quite some time. Long before
WeWork, there was Regus, which has an executive suite setup. Today’s co-working
companies are a modernized version with upgrades and nuances that create a more
collaborative work place. Regus had a successful run in the late 1990s,
alongside the dotcom boom. (We all know how that ended.) It eventually fell
victim to the economic downturn and was left with an over-supply of office
space and was forced into Chapter 11. However, Regus
(now IWG) survived and remains in business today with more than 40 locations in
the Houston area and the largest flexible space provider in the country. Do
today’s co-working companies have long-term staying power? Can they survive an
economic downturn?
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| Courtesy of WeWork, Houston Galleria |
There are an estimated 100-plus flexible
working space companies in Houston that likely make up less than 1% of total
office space inventory. Given the undersaturated market, there is potential for
growth in the Bayou City. WeWork
has two locations with a combined estimated 142,000 sf. Other newcomers include
Reth!nk,
slated to open its 42,000-sf space in Houston’s Midtown Arts District in spring
2019. Austin-based FirmSpace
will take up 2 floors at 2200 Post Oak Boulevard for a total of 32,872 sf by
the end of 2018, and Work Well, opened by Houston-based development company
Caldwell Cos., has 23,000 sf at 13100 Wortham Center Drive in northwest
Houston.
Whether the flexible space trend will
continue to accelerate and assimilate into the office market landscape remains
to be seen. Landlords
may still want to take a cautious approach to making long-term investments with
co-working companies. As with most new ventures, there is fierce competition
within the market to rise to the top. There were winners and losers from the dotcom bust of the 1990s. Survivors that continue
to thrive include Amazon, Priceline and Ebay. Will WeWork and Regus continue to
dominate the co-working industry? We shall see.
(Rand Stephens
is a Principal of Avison Young and Managing Director of the company’s Houston
office.)
