Commercial Investment Real Estate Spring 2020

DOWN BUT NOT OUT the course of his career, he has co-founded multiple companies, including Atlanta Investment Properties, Commercial Property Professionals, and SharedSpace. Founded in 2016, SharedSpace is a coworking business that operates within two of Levison’s buildings in the Atlanta metro. It is very much a third-party, arms- length agreement, with the ownership of the buildings different from the ownership of the coworking busi- ness, notes Levison. SLOWER GROWTH PACE AHEAD WeWork has been an engine powering expansion of the flexible office market. It accounted for 45 percent of the flexible space that exists in eight metros stud- ied — leasing about 15.3 million sf — across New York, Washington, D.C., San Francisco, Chicago, Atlanta, Houston, Los Angeles, and Orange County, Calif., ac- cording to a research report by Savills and Workthere. WeWork tapping the breaks is weighing on net new lease deals from flexible space providers. Cush- man is predicting that net new leasing from coworking providers will continue to grow, albeit at a slower pace of around 3 percent in 2020. In the near term, flex op- erators seem to be pausing expansion and are focusing more on managing existing footprints, notes Gladwell. Some operators may be taking a bit of a wait-and-see approach to see how changes within WeWork impact their own strategic expansion. At the same time, the retrenching occurring at WeWork could also create opportunities for other play- ers to step into that gap. WeWork is the big gorilla that everyone talks about in the coworking universe, notes Tim Vi Tran, CCIM, founder and president of The Ivy Group, a boutique commercial real estate firm based in Fremont, Calif. Coworking, however, has become increasingly crowded; 2019 research from Colliers In- ternational found 140 coworking providers active in 19 major metros, including major players such as Regus, Knotel, Spaces, Convene, and Industrious, that have created significant footprints. In the Fremont market, a half dozen small co- working providers have spaces that range in size be- tween about 5,000 and 10,000 sf, notes Tran. “I think what’s going to happen is that those smaller players will step in and grab some of the market share from WeWork,” he says. New York (Manhattan) San Francisco Washington, D.C. Seattle Miami Boston Atlanta Denver Philadelphia Los Angeles Dallas-Fort Worth Minneapolis-St. Paul San Diego Houston Private Office Dedicated Desk Shared Desk Portland, Ore. Chicago Kansas City, Mo. Raleigh-Durham, N.C. Austin, Texas $0 $200 Source: Colliers International $400 $600 $800 $1,000 LANDLORDS GET IN THE GAME WeWork deserves credit for helping to show that there is demand from corporations for shorter term leases with bundled services. What WeWork also has shown is that providers can’t just go into a building as a tenant and take all the risk, says Levison. Coworking spaces often require a significant investment in build-out along with overhead costs related to services and ame- nities. In addition, coworking spaces require ramp-up Warehouse/Distrib time to achieve occupancy and profitability. All of that Effective Rent Gro can be very costly. “That is a model that we don’t be- lieve works,” Levison says. “The model that does work 1.2% is if you are in a partnership with the building owner and there is a sharing of risk and reward.” SharedSpace currently has two locations in suburban Atlanta that 0.8% combined encompass about 40,000 sf. Both are hov- ering at about 80 percent occupancy. For landlords and investors, the conversation has shifted away from, “Should we provide coworking 0.4% space?” to, “How do we go about doing it?” adds Glad- well. Do building owners partner with a flex operator, or do they build and operate it themselves? “Because 0.0% of the slowdown in expansion by flex operators, I think 4Q 1Q we’re going to see higher levels of investment from 2016 landlords and investors,” she says. Some landlords are $1,200 Average Space Costs Per Month Source: Moody’s Analytics R 26 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2020

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