Shared Spaces: What Are They & How Are They Affecting The Market?
What Are They & How Are They Affecting The Market?
Packaged office is a concept that’s been around for decades in some form or another. The idea is simple: break up vacant space into small, short-term rentals; charge a premium on the rent; and, if you can keep it occupied, you have a business. Over the last several years Vancouver has witnessed a consolidation in this sector with Regus being the largest player in leasing new space and acquiring other packaged offices to grow.
However as mentioned in the “Downtown Snapshot,” WeWorks is responsible for the largest recent office deal in the downtown core. They’ve committed to seven floors (80,000 square feet) in the Bentall 3 tower, anticipated opening in summer of 2017. This lease will be the largest contiguous business centre in Vancouver to date, causing us to dive a little deeper into this sector and what it implies for the Metro Vancouver office market.
What Do These Services Provide?
Open working space, high-end coffee amenities, co-ed washrooms, a mother’s room, rooftop patios, mentorship and a personal concierge are just some of the options soon to be available. Even though they themselves are leasing space from a building owner, shared office companies act as a landlord to larger companies looking to take up multiple floors, or a simple club membership to a start-up company of two employees.
They provide a community outside of your classic, cut-out, solitary office spaces. They encourage strangers working at a lone desk or part of a large corporation to meet in the common area over a cup of coffee and a shared love of turtles. Much in the way that the invention of the Internet brought out new opportunities for those with shared interests to converse across vast distances, shared offices are creating a neighbourhood in which those with very different jobs can complement each other’s lives, whether that’s offering accounting services to a freelancer or a software engineer offering IT assistance to a neighbouring lawyer with an aging computer.
To compete with the skyrocketing value of WeWork and other new players in the coworking market, Regus branched out in 2015 expanding from its traditional, large-format corporate model to new target markets with the purchase of a Dutch company called “Spaces.” Spaces and WeWork operate in the same market, aiming to attract young, cool, hip, and creative people that may not necessarily associate their aspirations with a corporate Regus environment.
In Q1, Regus leased Century Group’s entire new building in Gastown, Ormidale Block. Regus expects to open their first Vancouver Spaces location in the fall of this year. 36,000 square feet of brand-new, open concept space finished with modern décor, glass offices and a rooftop patio. When speaking with Wayne Berger, Executive Vice-President of Regus, he mentioned their focus on the individuality of each area in the city. Although the Financial District and Gastown are next-door neighbours, there is a defined difference in the community feel and overall vibe of their offices in each separate district.
We are seeing more and more US-based incubators looking to expand to Vancouver. Seattle-based SURF (Start Up Really Fast) Incubator has been on the scene looking for an ideal space to house their advanced incubation business. Their model allows pre-established businesses the mentorship and leadership to bring their company to new heights.
Is This True Absorption?
With all of these recently completed business centre transactions, it poses a question: is this true office space absorption or has the office market evolved to include a new middle man while stabilizing income for landlords? There is no doubt that the market is changing. Businesses are changing and their needs for office space are adapting as well. Large companies are looking for new ways to downsize and offer employees flexibility to work where they’re most productive.
Companies with the sole motivation of offering savings for businesses on the costs associated with leasing – such as build-out construction and interior design – as well as offering new opportunities for community relationships are hugely desirable. It just makes sense.
Small technology businesses, research companies, and freelancers of all sorts are becoming more and more common. Where do these firms go for brick-and-mortar space? If they succeed and grow, it’s often in brief and sudden bursts supported by short-term financing demanding short-term commitments. The need for the flexibility to scale up or scale down while still offering large-office amenities is in high demand. Committing to a space for even a three-year term is out of the question for these companies.
We believe these companies will quickly prove that shared office deals represent true absorption. WeWork seems to be in serious discussions with their larger executive clients willing to commit to the majority of the space recently leased in Bentall 3.
Not everyone is confident in the drastic leaps these co-working companies seem to be taking. Property experts see the long leases as a classic worry in this space. Regus has sought to mitigate risk by entering into profit-sharing partnerships with landlords. WeWork has signed some profit-sharing deals, but has drawn scepticism from the industry by taking out major leases at a time when office rents in the larger markets are at record highs.
By Kaitlin Beaudry & Conor Finucane, Commercial Sales & Leasing