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IS ENTERPRISING THE FUTURE OF COWORKING?

Coworking has been around for decades, but in recent years coworking has arguably become the buzzword of the commercial real estate industry. It is an interesting phenomenon and a topic that brokers address daily. No one can argue the momentum of coworking; Orange County houses approximately 1.2 million square feet of shared space with almost half realized by WeWork. When touring a WeWork facility, the space resonates as a cool, modern, and collaborative place to be. Companies of all sizes, from start-ups to fortune 500 companies, cohabitate in the shared spaces and are often found mingling in a state-of-the-art lounge area or gathered around the beer tap with ambient music playing through the exposed ducting.

It begs the question, do these environments enhance a company’s ability to attract and retain best in class talent while maintaining the flexibility to adapt to the ever-changing business landscape? Recently, Stream’s Greater Los Angeles office was able to experience what it is like to work in a coworking facility during our recent office move. It was insightful to experience coworking first hand to understand the benefits and drawbacks confronting our clients in these settings. Initially, the energy was contagious, and I found myself engaging with my new neighbors whom I would run into throughout the day. After a while though, the allure wore off, and I found myself scrambling for private space to make sensitive calls or to find a quiet area for focused work.

As the world shifts, flexibility for companies is paramount and often comes at a premium. Besides the importance of flexibility, the Financial Accounting Standards Board has changed the accounting standards for the way companies account for office leases on their books. A lease longer than twelve months will need to be listed on the lessee’s balance sheet as an asset and a liability. The effect of this accounting change will impact a company’s ability to scale debt and capital requirements.

Enterprising might be the solution to check all the boxes for smaller users. For those not familiar, Enterprising is when an ownership builds-out and manages smaller offices for companies looking to lease space on a shorter-term basis. Many ownerships will endeavor to build creative offices with finishes like WeWork, which is what many companies in modern times target when looking for office space. The problem though is that construction has become so expensive to the point where it doesn’t make sense for landlords to build-out creative office space for a single tenant looking for a short-term lease. Enterprising solves this problem – tenants will be able to lease space for their exclusive use, work in a progressive environment based on the term length that aligns with their business plan. The caveat is that many landlords may not be willing to allocate the resources or do not have the portfolio size to build-out Enterprise office space. Specifically, in the Orange County office market, Stream believes Enterprising makes sound business sense for ownerships like Irvine Company and EQ. We will see what the future holds.

Brett Kluewer Stream Headshot

If you would like to learn more about Enterprising market trends or have questions about the Greater Los Angeles real estate office market, please give me a call or send me an email.

Sincerely,

Brett Kluewer
Managing Director
Stream Realty Partners, Greater L.A.

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