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Written by Josh Feinberg
on October 06, 2017

 

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Coworking has become a real revolution in commercial real estate. With the rise of titans in the industry of office sublessors, like WeWork, Regus, LiquidSpace and more we’re seeing companies both small and large embrace the idea of flexibility and collaboration in the workplace. These are great innovators, taking oftentimes difficult, underutilized space in office buildings and warehouses and converting them to useable, functional spaces that the general business community can access. But what are the true costs of coworking? This post aims to lift the veil a bit so you understand the pros, cons and like everything we do at Tenavox, the real deal, when it comes to leasing space.

Getting Started

One of the big positives of coworking space is its accessibility. You can sign an extremely short (less than one year) lease on a very small space (just a desk in some cases) in order to give yourself the feel and environment of a business with office space. Feels good, right? Let’s dive into some of the details on that lease, or sub-sublease actually.  

The structure

First, know that you are in effect signing a sublease of a sublease. While a direct lease gives you rights, documentation and ability to enforce items in a legal way with your Landlord know that in a sublease (and in this case one more level down) you are at not directly connected to your Landlord, the owner, manager or representative of the building. This doesn’t mean you cannot solve problems or ask questions, just know they don’t have any reason to solve them as you technically are not their tenant, you’re their Tenants Tenant. Damn, that’s confusing.

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Here’s the skinny. Your coworking Landlord is actually a Tenant of that big giant office building, they lease a big chunk of space, and have the right in their lease to run a business, predicated on subleasing portions of their space out as they see fit.  The way they make money is simple.

  1. Sign a below market lease with a direct Landlord and lock in a favorable long term agreement.
  2. Sign many many individual subleases (coworking agreements) with space users who need limited space and flexibility.
  3. Rinse and repeat.

So what do they really charge?

Well it varies market to market, as all office rents do. Here in Houston, the average cowork agreement is structured something like this.

  1. One year (or less) term
  2. $150-200/per month for a “desk” (25-40 S.F or less)
  3. $700-1,000 per month for a true private space , i.e. 100-120 SF with a door you can lock and close.
  4. An extra $200-250 in setup fees, plus printing, internet, reception/phone, etc…

So the average annual “desk” fee for a one year agreement (with one month free boiled in) is…..drum roll please...roughly $65/PSF for the desk plus setup fees and what nots, closer to $80/PSF when it's all said and done. Or in human non-CRE person terms, $2,100-2,500 per year.

For that room with a door?  More like $100-120 PSF, plus fees, or $10K+.

Now the average office rents in Houston are $27/PSF Gross. So you’re paying 3-5X what you would pay for a “normal” office lease.

BUT. You won’t be finding any one year deals on 100 S.F. though direct Landlords. So yes, you are paying quite a bit more per square foot, BUT you’re also getting major flexibility and a MUCH lower annual cash outlay. So if you truly only need 100 S.F. or a desk, coworking on a dollars per year basis (which incidentally is how they quote!) is fair.

There are also fantastic choices, turnkey spaces and really fast move-ins for coworkers space. All great positives.

Term

Where it gets tricky is how long you need it. As your business grows, from a desk to a room to a direct space, it’s important to work down your rate. How do you do that? Using term, credit and negotiation tips (like those found at Tenavox) to make sure you’re getting a good deal.

Long term deals with a direct Landlord are almost certainly better for your business if you need more than 1,000 S.F. Negotiating options, expansion rights, termination rights are all ways to make direct space work for you, and not the other way around. Check our our office leasing guides for comprehensive tips on this.

Intangibles

 

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Just like people love to tout Tim Tebow’s intangibles (he still can’t pass) there are many difficult to quantify aspects of coworking which may (or may not) be what you’re looking for. Coworking spaces often have collaborative meetups where you could get introduced to an amazing partner of founder, financier or freelancer. Being in an energetic environment could be your thing, driving growth. Or hell, some even have free slides and beer, and who doesn’t like slides and beer?

Of course there is another side to that coin, the environment could be distracting, noisy and annoying. You also may have concerns protecting your information of IP, ideas and sweet sweet coffee recipes.  ALL things to consider.

So to summarize, here’s the pro’s and cons list

Pros

  • Maximum Flexibility with short term and ability to upsize/downsize at will.
  • All-in-one package makes signing a lease easy and fast
  • Space is already built out, delivery is seamless and immediate.
  • Environment can benefit those who work in energetic, fast-paced industries. You may meet GREAT connections!
  • You get a real address and that cool feeling of being a consumer of space.

Cons

  • Pricing is high, straight up over long periods of time. BUT, total dollar outlay isn’t unfair.
  • Some of the environment's can be taxing, beer and slides could get old (or not).
  • Your setup fees for printing, internet, views etc… can add up. Negotiate!
  • Privacy and protection of your information are valid concerns.

So where is Coworking headed?

Well, we don’t see it slowing down anytime soon. WeWork is now the largest Tenant in the United States and many similar models along with established entities (Regus) are continuing to expand. Landlords in tough markets need to lease space, making a full floor (or multifloor) deal with a big coworking business is smart real estate. No one pats you on the back for NOT making money on your lease assets.

That being said, it would not be surprising to see some enterprising Landlords make some efforts to capitalize on their versions of cowork. Taking the spaces and cowork models in house over time. The risk in the industry is always HOW LONG do these below market deals last that allow coworking and sublease business models to be successful. I assure you, when the pendulum swings back into the direct Landlord’s favor, they will strike back.

Final Thoughts...and next steps

That being said, YOU are the final decision maker in all things YOU and should make the decision you’re happiest with. At Tenavox, that’s what we're all about. Connecting you with the best information, real estate and resources (including sweet vendors) to make your business a success. As Garth would say,

Party on! (with beer)

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Contact us for more tips and resources on making a great lease decision.

 

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