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Flexible Office Space Operators Focus on Add-On Services to Develop New Revenue Streams

Going forward, the success of co-working operators may rely partly on their ability to generate new revenue sources.

Looking for ways to create a better tenant experience and boost their bottom lines, flexible office operators are generating new revenue streams by offering additional on-site services and establishing new business lines.

LiquidSpace, a digital marketplace—a sort of an Airbnb of flexible office space that partners with co-working operators, serviced office operators, office landlords, and office tenants with sublet space, provides flexible office options to its clients. The company has also partnered with Steelcase to provide turn-key design and fit-out of tenant spaces within traditional lease structures.

“We’re the one platform where tenants can reach the entire flexible office market,” says Mark Gilbreath, LiquidSpace founder and CEO, noting that his company simplifies the discovery and transaction process.

“Landlords are using our platform and services to create ‘move-in ready’ office space and enter the flexible office economy,” he continues, explaining that many landlords are establishing their own flexible office brands to compete with co-working operators. The SWIG Company, an institutional office owner with assets in New York, Los Angeles and San Francisco, has established its own flexible office brand, as have other leading owners, including Washington REIT, Tishman Speyer and Boston Properties, Gilbreath notes.

Major office owners are entering the flexible office economy in response to growing customer demand, he says, noting that successful co-working operators are achieving significant rent premiums over traditional leasing. Achieving a rent premium is dependent on providing additional value to the customer, Gilbreath says—what Lisa Picard, CEO of EQ Office, has described as “the three Fs”: fast, flexible and fun experience.

Gilbreath notes that subsets of co-working spaces are emerging that are focused on specialty areas, such as incubators for early-stage start-ups and lab space for researchers. WeWork, for example, has established WeLabs, an incubator platform serving early-stage start-ups and forward-thinking enterprise companies, that aims to have 100 locations globally by the end of this year.

WeWork has already introduced WeLive, an all-inclusive co-living concept with existing facilities in Manhattan and Crystal City in the D.C. metro and one soon opening in Seattle, but it is spreading its wings into other business lines. The co-working giant has acquired Meetup, a social network that facilitates in-person gatherings, and the Flatiron School, a coding academy. It has also established RISE by We, a gym concept launched in Manhattan featuring a super-spa and wellness classes. In addition, the company has plans to launch WeGrow, a for-profit kindergarten for children ages two through five that will charge $36,000 annually per pupil and create giant wave pools for inland surfing.

Global Workspace Association Executive Director Jamie Russo notes that co-working and serviced office operators continue to offer add-on services, such as virtual offices, mail handling, and meeting room and event space rental. But she believes one of the biggest opportunities is in partnering with the owners of the buildings that they occupy to activate common spaces shared by all building tenants.

An example might look like the projects launched by Common Desk, a co-working space in the Dallas metro, she notes.

This includes a 52,000-sq.-ft. co-working space on two floors at the Trammel Crow Center in downtown Dallas’ Arts District, which offers an exclusive whiskey lounge that serves as a private social club for Common Desk members and other building tenants.

Common Desk also partnered with Transwestern Development Company at its newest office building at 3400 CityLine in Richardson, Tex., to create shared amenities, along with a 31,500- sq.-ft. co-working space.

Will Paton, Transwestern Development’s vice president, said in a Culturemap Dallas report that his company partnered with Common Desk for its ability to activate building amenities for all tenants with thoughtful programming, top notch staffing and technology, as well as its co-working expertise. He noted that his firm’s relationship with Common Desk is a partnership, rather than a lease agreement, which provides full transparency and aligns the two companies in all facets of leasing operations and space amenitization.

Melissa Schilo, a founding partner at Atlanta-based Workspace Concierge LLC, a boutique consulting and advisory firm for flexible workspaces, advises clients on revenue possibilities offered by maximizing use of their space. She stresses that maximizing space use and generating additional revenue should be considered by operators when choosing where and how much space to take.

New co-working operators tend to take small spaces, but with realization of many possibilities for driving revenue 24-7, they may take 20,000 sq. ft. or more and look for features like access to a rooftop or outdoor terraces, free or low-cost parking, transportation hubs and walkability, she notes.

Co-working space could be rented out after hours and on weekends for special events, such as bat mitzvahs, anniversaries or birthday parties, she notes. Renting space for wellness services, such as yoga classes, masseuse therapists and mediation gurus, could provide income, while providing co-working members with an additional amenity, Schilo adds.

She also suggests co-working operators could take this concept to a new level by creating member clubs and evening lounges where professionals can have informal meetings, generating revenue with membership dues and food catering and cocktail services. “Think So-Ho House, with a twist,” she says, noting that this concept is already popular in London and it may soon come to the United States.

Operators could also sublet space to retail operators for a café or coffeehouse. This concept is already developing.  Fort Worth, Texas-based Craftwork, for example, sublets unused space in apartment buildings to provide a co-working space integrated with a specialty coffee shop. Apartment residents have free access to the co-working environment, but Craftwork also offers paid social and dedicated office memberships to non-residents, including access to conference rooms, free coffee and events.

Carving out space for corporate office suites that can accommodate 10 to 20 workers is another secure revenue stream, as companies generally will sign a lease for 12 to 36 months. This arrangement offers companies a private office suite that also provides their workers the option of collaborating with other co-working users on-site, Schilo notes.

Eventually, co-working operators will begin taking space in retail centers, she predicts, which would resolve challenges such as expensive parking in central business districts; provide attractive rents due to the demise of some big-box retailers; and expand opportunities for new revenue streams.

Location within a retail environment would provide co-working users access to a variety of amenities, but Schilo suggests that operators could leverage the space to segue into retail uses, like short-term pop-ups, as this would be an ideal situation for retailers to showcase or test new products or conduct focus groups.

Schilo expects co-working growth to slow down over the next couple years, as the real estate cycles matures, but sector operators will likely continue to grow and explore new ways to generate revenue with both “high churn” and stable opportunities.

A recent report from real estate brokerage and advisory firm Newmark, Knight, Frank looked at five potential scenarios for the future of the co-working industry, which currently occupies 49.7 million sq. ft. of office space.

It noted that co-working space has raised the bar for office amenities, design and curated services, tasking owners with elevating their game. The report predicted the most likely scenario is continued growth in the co-working sector, but with some consolidation, as smaller operators will increasing find it difficult to compete in a saturated market.

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