A Lively Coworking Space Is Now ‘Table Stakes’ For Office Owners Hoping To Stay Relevant

This article is originally from Bisnow published August 01, 2024.

In the evolving landscape of commercial real estate, new and renovated buildings are now expected to offer a comprehensive range of amenities to attract tenants. Traditional features like fitness centers, scenic outdoor spaces, and welcoming lobbies are no longer sufficient. In the wake of the pandemic, coworking spaces have emerged as a crucial addition to this list, transforming the way office buildings cater to modern work habits.

The pandemic fundamentally altered the traditional office environment, introducing hybrid work models and increasing the demand for flexible workspaces. The shift towards hybrid work has led companies to sign fewer, smaller, and shorter leases, contributing to a national office vacancy rate of 20.1%, the highest since Moody’s began tracking the data in 1979. This significant change has propelled coworking and flexible office spaces to the forefront of office amenities.

Coworking spaces are not a new concept. They have been around since the 20th century, with business centers and flexible offices offering shared workspaces. However, the modern iteration of coworking spaces is vastly different, focusing on hospitality, comfort, and connectivity. These spaces are designed to provide an experience akin to checking into a hotel, as noted by Sarah McCann, Vocon’s Real Estate Strategy Director.

“It’s much more hospitality-driven,” said McCann. “It’s less about packing people in, sitting really close to each other and hotdesking, and more about coming in for an experience. It feels like you’re almost checking into a hotel.”

Companies like WeWork, Industrious, and Convene have set new standards for coworking spaces, prompting commercial landlords to enhance their offerings. The detailed and thoughtful design of prebuilt spaces is now a priority, with landlords and developers willing to invest more to make these spaces move-in ready.

“The level of detail and the level of thoughtfulness that’s going into our prebuilt spaces these days is much greater than it’s ever been,” McCann added. “And landlords and developers are willing to invest a bit more in those spaces to make them even more move-in ready.”

Both landlords and tenants are navigating uncertainty regarding the amount of space required. Some tenants are downsizing to save costs, while others seek flexible spaces for conference calls and breakout functions without the burden of maintaining additional square footage. This flexibility is persuasive for tenants considering staying in a building, despite potentially higher overall costs compared to larger leases.

Not all office landlords are embracing coworking spaces. For instance, Marx Realty CEO Craig Deitelzweig prefers long-term tenants to maintain an exclusive, club-like atmosphere at 10 Grand Central in Midtown Manhattan. He believes coworking brings a type of tenant that does not align with his vision for the building.

“We want our buildings to be exclusive, club-like atmospheres,” Deitelzweig said. “We find that coworking brings a type of tenant that we don’t want in our buildings.”

The rise of coworking spaces is a testament to the changing dynamics of the modern workplace. As businesses continue to adapt to post-pandemic realities, the demand for flexible, hospitality-driven workspaces will likely persist. Office landlords who embrace this trend stand to benefit from lower vacancy rates and more adaptable tenant relationships, ensuring their buildings remain relevant in an ever-evolving market.