Start-Ups Are Staying at Co-Working Spaces

David Freitag is a broker in CBRE’s occupier services group.

LOS ANGELES—Co-working spaces are becoming a major competitor for office tenants. An evolution of executive suites, co-working spaces are no longer short-term alternatives to leasing direct space for start-ups. The shared-office environment is becoming ubiquitous for small tech and creative companies, and according to a new case study from CBRE , it can also be more cost effective than leasing a direct office space. “Co-working is not just something that you are going to do for six months until you grow out of it,” David Freitag , a broker in CBRE’s occupier services group, tells GlobeSt.com. “Companies now have the ability to further expand within the co-working space before they have to go lease direct space and encounter a large up front capital cost. This shift has taken place over the past year to year-and-a-half.” According to Freitag and the case study, co-working spaces are regularly increasing their employee capacity for individual companies to allow for longevity and expansion. “In the past, if you had between six and ten employees, that would be the time when you would want to consider leasing direct space, but the number of employees has slowly increased to 12-16, and even at the new 90,000-square foot WeWork in Downtown L.A., there are rooms and spaces carved out that could fit a team of 32,” says Freitag. “They are really finding ways to integrate larger companies and larger groups.” Staying in a co-working space can have a significant cost savings to leasing direct space as well. The case study shows that in Washington D.C., the average annual cost of a 10-seat co-working space is $52,000 to $84,000, compared to $72,000 to $92,000 annually for the same size space leased directly. “I think those figures would certainly ring true in this market as well,” says Freitag about the Los Angeles market, noting that there is a significant savings in all major metropolitan markets. But, it isn’t only a cost savings. Co-working spaces are also indicative of a cultural shift in office space. We have already seen this trend in the creative office movement, which allows employees to better connect with their co-workers. Co-working spaces take that a step further to allow workers to connect with other workers outside of their company and even their industry. “You don’t really go to a co-working space for complete privacy,” adds Freitag. “You go to a co-working space for the sense of community, the events and the relationships that you are going to build with other companies and entrepreneurs that aren’t necessarily in the same industry.” In light of this new competition, landlords of traditional office spaces are slowly moving to rebrand and update their buildings to attract more creative or modern companies. “Landlords of class-A high rises have a fire lit under them to re-brand their buildings to attract tenants that are more attracted to an open-canvas feel with a lot of great amenities associated with it,” says Freitag. In the meantime, co-working spaces are baring the load, signing big office leases and converting the spaces into creative and collaborative environments—and they are reaping the rewards. CBRE recently signed two leases totaling 59,000 square feet with Spaces , while other brands like Village Workspace is working on citywide expansion.