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Shared Office Providers Opening Up in Secondary Markets

CHICAGO—The sector's big players have concentrated on five top markets, but lately even smaller cities have seen shared offices open up in tech-heavy areas.

By Brian J. Rogal | brianjrogal | | Updated on July 11, 2016

 

chi-makeofficeschicago (4) Washington, DC-based MakeOffices recently opened its first Chicago site in River North.
CHICAGO—As reported last week in GlobeSt.com, JLL recently completed a study on shared office providers in the US office market, and found that the sector has entered a period of robust growth. There was nearly one million square feet of shared offices leasing activity in the first quarter of this year by companies like WeWork , Regus , MakeOffices and many others, bringing the total size of the industry to 27 million square feet. And one shift that has become more apparent is the spread of providers into secondary cities. For the most part, the top companies have concentrated on opening sites in five top office markets. New York, Chicago, Los Angeles, Boston and Atlanta have the most in terms square footage, although select submarkets in other cities, such as Washington, DC’s East End and Philadelphia’s Market Street West, have seen big shared offices open up. But Chicago-based JLL also found that areas like Charlotte, St. Louis, and Northern VA now have a fair amount of leasing activity from co-working providers, especially in submarkets with a heavy tech presence. By the first quarter, for example, both the Portland CBD and the LoDo submarket in Denver had more than 100,000 square feet of shared workspace. And in the second quarter, CENTRL Office signed a long-term lease for 23,000 square feet in a creative district east of Portland’s CBD, and Regus took another 20,090 square feet in Denver. “New York and Chicago definitely have the largest share of co-working space in the country, but we’re now starting to see a trickledown effect in secondary markets,” Julia Georgules , vice president and associate director of US office research for JLL The demand for creative office space is a national phenomenon not confined to top office markets. However, at this point providers that establish sites in secondary markets such as Phoenix will take 20,000 square feet rather than the 150,000 square feet that could be justified in New York’s Water Street Corridor.  Steffen Kammerer , senior vice president at JLL adds that the co-working option “is providing large companies the opportunity to test markets” without the trouble and risk associated with signing traditional leases. Georgules expects this demand from Fortune 500 companies, coupled with that from smaller tech firms and start-ups, which had fueled the co-working boom in the past few years, will keep the sector expanding. But she also expects office hiring in general to slow somewhat over the next 12 to 18 months, and this will moderate the expansion of co-working spaces. Currently, the sector comprises 0.7% of the total US office sector, and it probably won’t reach 1% by 2017.   Kammerer emphasizes that the JLL study was confined to leases of 20,000 square feet or more, and that in addition to the big players, there is an ecosystem of new firms, such as Breather , a Montreal-based startup, that are opening up smaller spaces in the nation’s hot submarkets. “We’re seeing co-working spaces pop up in all sizes.”

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