South Florida increasingly pays for office space as a one-stop service business, with companies forsaking a traditional lease in favor of a modern mix of open-seating areas and private offices with perks, including free coffee, that aim to promote collaboration and innovation among tenants. But as co-working behemoth WeWork — with its $20 billion valuation — increases its presence in the area, will the locally founded stalwarts get drowned out?
The nation’s largest co-working office operator, New York-based WeWork, started opening locations in the Miami area in 2012, two years after Miami-based Büro Group said it introduced the co-working concept in South Florida. WeWork’s arrival in Miami coincided with the startup of another formidable Miami-based competitor, Pipeline Workspaces.
“When we started in 2012, WeWork really was not a known entity,” says Philippe Houdard, co-founder of Pipeline.
WeWork is increasingly making its presence in the Miami market known. As the end of 2017 approached, the company was preparing to double its Miami-area space by opening new locations in Coral Gables, where the company leased 60,000 square feet during the second quarter, and downtown Miami, where it leased 97,000 square feet in a 15-story historic building.
The WeWork space in Coral Gable’s Giralda Place mixed-use development is planned to open by the end of 2017. There, WeWork is leasing six floors. In November, the firm lined up five companies to occupy one whole floor each at the 15-story Security Building, a historic landmark in downtown Miami, according to Adam Wacenske, South Florida general manager of WeWork.
In a mid-November phone interview, Wacenske declined to identify the big-membership buyers at the Security Building, but he said the terms of such whole-floor commitments “can be from one to five years.” Asked if WeWork lowers its price in exchange for large-scale, long-term commitments, Wacenske said, “I don’t think so, necessarily.”
Unlike some smaller local co-working operators, WeWork is driven by big business, said Mark Pateman, managing principal for Palm Beach County at Cushman & Wakefield. “The enterprise business is where they’re focusing, providing space for IBM and Boeing, global companies that really need scalability,” he said.
Pateman also said some smaller South Florida operators might not have staying power in a slower economy. “The big guys, the WeWorks and Reguses, are going to be more resilient in a downturn,” and smaller sellers of office space as a service and an experience will be subject to “a large cleaning out.”
And Regus, with about 3,000 locations around the world, including about three dozen in South Florida, has been making some local moves lately. Since late 2016, Regus has opened five South Florida locations, in Aventura, Fort Lauderdale, Jupiter, Miami Beach and Sunny Isles Beach. It is also preparing to open a co-working office location under its Spaces brand in downtown Miami in 2018.
The first Spaces in South Florida will open in a multilevel, 19,000-square-foot space at MiamiCentral Two, a 190,000-square-foot office building in downtown Miami that is under construction and expected to open in early 2018.
After introducing Spaces to South Florida in Miami, Jeff Doughman, executive vice president of North America sales and operations, said Regus plans to open more Spaces locations in South Florida targeting large companies, not just small fry.
“We provide a lot of larger space for corporates,” he said, calling commitments of two and a half years or less for 15,000 square feet or more “our sweet spot.”
The supply-side growth of the co-working segment in South Florida’s office market, now seven years old as estimated by stakeholders, may have years to go until it recedes.
Limited office construction in the last decade has helped to hold down office vacancy rates in the tri-county market. A Cushman & Wakefield survey shows that third-quarter office vacancy rates fell year over year in all three counties. Third-quarter vacancy rates fell from 13.5 percent to 12.2 percent in Miami-Dade County, from 14 percent to 12.3 percent in Broward County and from 16.9 percent to 12.7 percent in Palm Beach.
But the economy still moves in cycles, and at the first whiff of a downturn, South Florida’s cluster of co-working offices could look like a crowd.
“Right now, the demand still outpaces the supply, at least in the neighborhoods where we operate, and we haven’t had to drop prices in any of our locations,” said Michael Feinstein, founder and CEO of Büro, which has five Miami-area locations.
Büro plans to build on its Miami-area base in southeast Broward County. In January, the co-working operator expects to start building out the interior of a 15,000-square-foot location in downtown Hollywood at 2031 Harrison Street. Büro and an Ecuador-based partner bought the building there in August from a municipal agency for $1.15 million. The new Hollywood location is expected to open by the fall of 2018.
Pipeline Workspaces also expanded north to Broward, where it opened a location in Fort Lauderdale in October 2016. The company opened its first co-working location in the Brickell area in 2012 and now has Miami-area locations in Coral Gables and Doral, too. In September, Pipeline opened its fifth Florida location, in Orlando.
The Pipeline client roster presents some evidence that not every corporate giant will opt for WeWork over smaller co-working companies. In its Coral Gables location, Pipeline houses corporate tenants Kayak, Postmates and Priceline.com.
But not every co-working operator in South Florida is looking to land big businesses. The Lab Miami is a five-year-old operator that has been content with its sole location at 400 Northwest 26th Street in Wynwood.
“We started about five years ago with a grant from the Knight Foundation. They’ve been our biggest supporter,” said Rachel Bickford, managing director of The Lab Miami. “We don’t have a business plan like WeWork where we want to be in every city in the world. We’re just focused on growing the entrepreneurial ecosystem here in Miami.”