“If companies aren’t looking to leverage a (coworking) space or something that supports that flexibility, they’re asking, ‘How can we build something like this in our space?’” explains Megan Mackinson, executive vice president of workplace planning and projects at brokerage Jones Lang LaSalle, who has spent much of the past two years discussing the meaning of “hybrid working” with more than 600 companies. Most companies looking for new space favor buildings with co-working suites or pre-built offices that would allow them to easily expand as needed, she says.
Coworking offices sprang up all over Chicago before the pandemic, peaking at around 3.6 million square feet in early 2020, according to data from brokerage firm Cushman & Wakefield. That number fell by about 8% in the middle of last year, slightly more than the average national drop over that period, as many smaller coworking providers succumbed to a lack of demand during the health crisis. public. For some skeptics, the dwindling inventory showed that shared office providers relied too heavily on risky short-term leases and couldn’t weather an economic downturn.
But the closures mostly came to a halt in the second half of last year, and rising demand prompted other coworking providers to expand. Chicago-based Workbox, which primarily caters to start-ups, had a downtown location in early 2021 but has since opened three more. It has grown from 30 to 150 member companies over that time and is 95% busy at two of its sites, says CEO John Wallace.
New York-based WeWork, which has 11 locations in Chicago, saw its average occupancy drop from around 80% in mid-2019 to 45% in late 2020, but rebounded to 70% in late March, according to the company. .
Large companies, which typically take up more space in shared offices than startups, are driving much of the growth. New York-based Industrious, which plans to open a new location in the redeveloped Marshall Field building on State Street later this year, said business demand has increased the required average size of its user base by nearly 20% from pre-pandemic levels. “We have an opportunity with most of the Fortune 500 right now,” said Industrious CEO Jamie Hodari, adding that employee disregard for travel is pushing more companies toward a “hub-and-spoke” model. ” with a shared workspace serving as a satellite office space.
A joint venture of Chicago-based Glenstar and Philadelphia-based Rubenstein Partners recently bet one of its suburban office buildings could be such a radius, especially after COVID accelerated a millennial migration to the suburbs. . The owners have partnered with 25N Coworking on a new 23,000 square foot shared office set to open this summer in the Continental Towers office building in Rolling Meadows, Glenstar’s first local suburban coworking offering.
JLL predicts that flexible office space, including co-working spaces and other spaces rented under low-risk agreements with flexible terms, will represent approximately 30% of all office inventory by 2030, against less than 3% today.
Such an increase would have significant ripple effects on the local office market. Before the pandemic, some real estate investors viewed coworking space in an office building as if it were space leased to a traditional tenant with below-investment-grade credit, making it a higher risk and lower the overall value of a property. But in a post-COVID era, where many tenants are seeking both lease term flexibility and foregoing costly, time-consuming builds, coworking could be seen in a better light and potentially increase a building’s value. .
Increased demand for flexible office space could also accelerate a recent trend of companies flocking to the highest quality buildings possible to recruit and retain talent, said CBRE Senior Vice President Mark Cassata. Small businesses may opt for coworking space in a trophy office tower – where they might not be big enough to merit a traditional lease – instead of taking up office space in an older, cheaper building with fewer amenities like they could have done it in the past. This could exacerbate the already significant problems plaguing owners of outdated buildings.
All landlords need to “solve the need to know how people plan to work in the future,” which likely includes traditional offices, homes, and other places like coworking, hotels, or private clubs, Cassata says. . “The trends we’re seeing across all segments show how the market can provide the opportunity to work effectively in a hybrid work model.”