Coworking, with its creative ethos and collaborative open spaces, is one sector of the office lease market that appeared decimated by the pandemic’s effect on real estate.While coworking may appear to be on the ropes, industry experts caution not to underestimate coworking, which could stage a comeback.“It has not died. However, its rebirth is slow and nowhere close to its peak,” said Jim Markel, vice president and regional manager of Marcus & Millichap in Encino.Coworking rode high from 2012 through 2019 with the rise of WeWork, which made flexible office space attractive to young tech workers.“They were blanketing the area like a Starbucks,” said Mike Soto, Southern California research director for Savills, a downtown Los Angeles-based real estate data firm.But by 2019, internal problems at WeWork imploded the company’s organizational leadership, casting a stigma on the long-term viability of the business model. Then the desire for shared office spaces dwindled after the pandemic broke out in March last year.“Some of those tenants with 20,000 square feet would have that open area. That’s going away,” said Spectrum Commercial Real Estate’s Yair Haimoff. “We see that diminishing.”But in the pandemic’s aftermath, flexible office space could become more attractive as companies favor limited and more surgical office use over long-term leases. According to a third quarter study last year by the commercial real estate firm Cushman & Wakefield, the amount of leased flexible office space in the top 23 U.S. markets was 67.1 million square feet, which was up 2.5 percent from the end of 2019.Savills’ Soto said that, as a result of market conditions, there is something of a rebound going on with coworking, but “it is uneven. We’re hearing that some WeWork locations are pretty full where others are a little slower.” Most notably, Soto said, any relinquishing of square footage by coworking companies is going on in other parts of greater Los Angeles but not in the San Fernando Valley.“WeWork in NoHo, Burbank, Woodland Hills, they’re all still there,” Soto said.That’s because “the Valley doesn’t have a lot of these fast-growing tech companies – they have much more disciplined businesses,” Soto said.WeWork’s San Fernando Valley story differs wildly from the one in the rest of Los Angeles, where the coworking company has shed thousands of square feet at prime locations, including Playa Vista, Westwood, West Hollywood and Mid-Wilshire. “It’s not really that popular right now,” Haimoff said of the WeWork model. “Regus gets more activity than WeWork because Regus has more enclosed offices.” JLL office broker Dan Sanchez has crossed paths with coworking institutions when representing landlords.“I haven’t seen much or heard much (regarding coworking moves), which is not necessarily bad,” he said. “No news is good news.”Sanchez said the coworking model has proven surprisingly resilient.“The flexibility component has a niche in our market,” he said. “There are a lot of people in the coworking environment in their own workplaces as well. The coworking model doesn’t mean (people working) shoulder to shoulder on benches. If they want a couple of (enclosed) offices, they’ll do that.”Soto noted that WeWork’s competitors – Spaces, Industrious, Premier – not to mention Regus are still around, as reflected by the Business Journal’s annual directory of Co-Working Locations (see page 18).
However, “it’s too early to tell the fate of (coworking),” Soto said. “They were flush with cash, they were taking space all over the region. It’s going to be interesting to see if there’ll be another round of closures.”Soto predicted that with so much available square footage on the market, it may take a very long time for the office sector to get up to speed and leasing options will favor tenants for at least a couple of years.Ultimately, when it comes to coworking, the narrative has the same inconclusive ending as that of the Vallery’s broader office sector.“A lot of people are trying to read the tea leaves and see how it shakes out,” JLL’s Sanchez said.— Michael Aushenker
Coworking Quandary
