Coworking's asset-light resurgence

The landscape of coworking has evolved significantly from its early “move fast and break things” days, when some operators overspent and overpromised, bolstered by a venture capital bubble that has since deflated. Instead of leases, today’s smart operators have learned from their peers’ past mistakes and developed “asset-light” models and mutually beneficial agreements with landlords. These types of agreements are a boon to property owners facing higher-for-longer interest rates that increase the cost of refinancing–and the urgency with which they need to fill space. When the building and market are the right fit, we’ve seen differentiated coworking operators fill space faster than traditional offices.

Coworking is the salve for RTO headaches

Companies today are facing economic uncertainty. Flex space provides an opportunity to test the hybrid work waters before making long-term commitments.

Most industries are still struggling to incentivize employees to return to the office in the aftermath of the COVID-19 pandemic. Workers tend to like coworking as a way to avoid commutes while working in person with smaller teams, networking with others in their industry, enjoying amenities, and being away from home while staying close to their neighborhood.

Enterprise companies use coworking as swing space to support expansions and contractions, often within the same building. They use flex as a testing ground for workplace strategy shifts, change management strategies, and entry into new markets. They also use it to set up regional offices and enable their remote and hybrid workforces.

Mid-stage companies use flex locations throughout the country (or globe) as a way to establish a presence in new markets and hire talented staff without geographical barriers. Early-stage companies also seek flexibility and often choose operators with the resources to incubate their growth.

Companies of all stages and sizes enjoy the liability benefits in a time of uncertainty. Flex tenant agreements are usually not a liability on the books due to being licenses, not leases.

Asset-light models take center stage

Operator management agreements and revenue share models with landlords have become more prominent in the wake of the pandemic and the industry turmoil it caused. These agreements create better alignment between landlords and operators, provide protection against downside market risk, and incentivize the operators for strong performance. Successful deployments can produce outsized returns for the landlord.

Our client, the coworking operator Workbox, continued to grow through the pandemic with an asset-light and service-heavy model based on landlord partnership agreements instead of traditional leases, according to CEO John Wallace.

Workbox took over other operators’ “underperforming locations” in Chicago, Wallace said. Then, they opened locations in Minneapolis, Salt Lake City, and Columbus. The company is now focused on expanding throughout the Midwest and around the United States, primarily by taking over struggling or failed operator locations and improving them.

Creative deals with landlords make their model sustainable for both parties. For example, Workbox requires minimal tenant improvement funds from its landlord partners, which is particularly attractive to owners with debt coming due. These landlords are seeing success filling vacancies with turnkey flex and coworking spaces run by a reputable operator where there is a strong product and service fit for the building, submarket, and local tenant base.

As deals that are more favorable to owners increase, some landlords, like Tishman Speyer and Hines, have launched their own flex spaces in-house.

Differentiation is key

Standout flex offerings and unique service propositions that target a specific member base are critical to an operator’s success.

Workbox differentiates itself by tailoring its services to early- and growth-stage companies with 3-50 employees, as opposed to enterprise companies. Membership includes access to business services like marketing consulting provided by Workbox strategic partners and monthly programming like “ask me anything” sessions with VCs. These partners offer entrepreneur-focused business services on the Workbox platform, making them low-risk for the operator and landlord.

The operator sets itself apart further with its venture fund for pre-seed companies, Workbox Ventures. It gives budding companies tools to grow and access other VC partners on the Workbox platform.

Our client Workplace K differentiates itself in Toronto as an operator with cutting-edge technology. Their VR-enabled meeting rooms, fully equipped podcast studios, thoughtful design, elevated food experiences and bespoke service reimagine flexible work and set new benchmarks for service excellence and hospitality.

A new flex era

The success and expansion of Workbox and other modern operators reflect a significant shift in the coworking space, emphasizing the importance of flexibility, strategic partnerships, and differentiated service offerings that target a specific niche.

This approach not only mitigates risks associated with fluctuating market demands but also positions operators and landlords for continued growth and success in a post-pandemic hybrid world.