CHICAGO—Landlords throughout top-tier cities have begun to see collaborative workspace operators as star tenants that can bring buzz to their buildings, and WeWork's recent lease at 20 W. Kinzie St. in River North may have been a landmark for the industry. As reported in GlobeSt.com, the global operator replaced Google as the building's anchor tenant and the 105,000 square-foot lease was the largest co-working deal outside of Manhattan.
“This is the beginning of the next phase of growth for the industry,” Matthew Ward, senior managing director, Newmark Grubb Knight Frank, tells GlobeSt.com. He handled the transaction at 20 W. Kinzie and WeWork's lease of 25,281 square-feet in One11 West Illinois St., also in River North. And along with Craig Hurvitz, NGKF's director of research, he has just developed a worldwide database of co-working spaces.
Companies like New York-based WeWork are “starting to bite off bigger chunks” of office space, Ward adds, and he and Hurvitz believe this trend will continue. From 2012 to the end of 2014, the average size of new co-working offices hovered between 11,182 square feet and 16,858 square feet, the data show. But in 2015, the average size has shot up to 56,663 square feet.
A key factor driving this growth is that more established, traditional firms have started to understand how to use co-working spaces. “Tech firms are the stereotypical occupier of this type of space, but it's now much more diverse than that,” Ward says.
Instead of startups that have just graduated from tech incubators like Chicago's 1871, Hurvitz says regional firms and even Fortune 500 companies have started signing deals with WeWork and others in the field. “That's a big trend that hasn't garnered much notice.”
WeWork offers a variety of workspace options for teams of all sizes and office services that include healthcare, payment processing, and discounts on Zipcar, hotels, local businesses, and much more. Since its establishment in 2010, WeWork quickly expanded to more than 40 different locations in 15 cities and four countries.
The attraction these spaces have for even established firms is not difficult to understand. Just a few years ago, a company that wanted to establish an outpost in another city would have to sign a lease, hire an office manager and other staff, and essentially take on a set of long-term liabilities. But after signing a deal with a co-working operator like WeWork, the same company can immediately have new offices in ten cities on a month-to-month basis. And if it decides certain markets are not working out, Ward says, the company can “just cancel the lease and have no more headaches.”
“I think the size of these spaces will cap out at 50 to 75,000 square feet,” he adds. Co-working providers will prefer to establish about ten spaces of roughly these sizes in individual markets rather than one massive one. Certain neighborhoods in Manhattan, for example, already have more than a dozen co-working establishments. “That growth pattern will roll out in phases throughout the nation and even internationally.”
Currently, the major co-working providers are focused on opening offices in core cities such as Chicago, but Ward says they will soon spread to secondary and tertiary cities such as Pittsburgh, Columbus and Tampa. “This is not just going to be a couple of big deals in a couple of big cities.”
NGKF found that the number of co-working spaces worldwide had increased to 4,060 by 2014, and the firm forecasts that by 2018 there will be 12,000. Furthermore, the number of people using these services will increase to 1 million by 2018, up from around 200,000 in 2014.
But Ward and Hurvitz also believe that the co-working industry could change in important ways as it expands. Ward points out that the fast-food industry began rather simply with “Ray Kroc selling hamburgers at McDonald's,” but today it has segmented into a vast array of offerings that caters to many different tastes and demographic groups. A similar process could get underway among co-working providers as they design offices meant to hold special appeal to millennials, baby boomers or other groups. “That's not happening today, but it may be in 2017 or 2018.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
