In Manhattan office wars, sharing is winning

Shared office space providers among city’s fastest-growing tenants

Clockwise from left: Regus CEO Mark Dixon, WeWork CEO Adam Neumann and a WeWork space at 175 Varick Street
Clockwise from left: Regus CEO Mark Dixon, WeWork CEO Adam Neumann and a WeWork space at 175 Varick Street

(For related story, see “Space invaders: The five biggest shared space providers in NYC)

Late last month, shared office space provider WeWork, founded by pony-tailed Kabbalah practitioner Adam Neumann, made its second foray into Midtown South. WeWork’s 115,000-square-foot deal at 113-133 West 18th Street put it in a prime position to lure startups looking to bask in the tech-crazed aura of Twitter, which recently announced it would set up its New York headquarters just a block away at 245-249 West 17th Street.

WeWork declined to comment on the deal. But its ability to devour such large spaces, sources said, is a testament to the explosive growth of the shared office business. Indeed, shared office space providers are now among the city’s fastest-growing tenants. The five largest providers have a combined footprint of over 2.8 million square feet across all major Manhattan submarkets, according to The Real Deal’s analysis. Luxembourg-based Regus, the largest of the pack, has more than 1.6 million square feet, a spokesperson for the company said, putting it among New York’s 15 largest office tenants.

“Structurally there’s a major change in the workforce,” said Mark Ravesloot, a vice-chairman at CBRE who is one of six brokers at the firm who work on Regus’ account in the city. Ravesloot noted that, in the wake of the financial crisis, many companies are looking to hire a more flexible workforce in lieu of a full-time staff — and therefore need a more accommodating arrangement for office space. These  arrangements can range from “flexible working spaces,” which are small, short-term dedicated spaces rented out to individual companies, or “coworking spaces,” which is when multiple companies share a single space.

The demand for shared space is not likely to ease up anytime soon. Regus , for one, increased its New York City presence by over 230,000 square feet in 2013, according to a company spokesperson. And Ravelsoot cited a study by software company Intuit that predicted that, by 2020, 40 percent of the U.S. workforce will be contractors, temporary workers and the self-employed. “Regus is certainly benefiting from that trend,” he said.

Sign Up for the undefined Newsletter

From a landlord’s perspective, shared office providers can be more desirable tenants than the historically sought-after law and financial firms, Ravesloot said. First, the shared-space business model allows providers to commit to major chunks of space. “Let’s say a law firm agrees to take 50,000 square feet,” Ravesloot said. “Someone like Regus can take three chunks of 25,000 square feet each,” and quickly lease them out to smaller tenants. Deals with shared office providers are also easier to execute, he added, as a landlord “can use the same lease for multiple spaces.”

But what’s perhaps most appealing to landlords is that shared spaces are incubators for fledgling companies that may later hatch into big space grabbers. The investment banking firm Moelis, for example, started off with a small Regus space in Brookfield Office Properties’ 245 Park Avenue in 2007. The bank grew at a steady clip even during the recession, later expanding to 50,000 square feet within the building.

“There’s a lot less explaining we do today then we did 10 years ago,” Ravesloot said of landlords’ increasing comfort with shared office space providers.

Certainly, some landlords have fully embraced the trend, launching their own shared space brands. Vornado Realty Trust, for example, markets shared space through its PowerSpace brand at three of its buildings: One Penn Plaza, 770 Broadway and 330 Madison Avenue. And SL Green, through its Emerge212 brand, markets space at 125 Park Avenue, 3 Columbus Circle and 28 West 44th Street.

Brokers could also reap riches from the shared space trend, according to technology guru and former independent mayoral candidate Jack Hidary. He suggested that brokerages could open up a division that connects venture capitalists and startups with these coworking spaces. “They [brokers] can thus gain momentum with these companies, and have a relationship with them when they’re ready to go out on their own and sign bigger leases,” Hidary said. “It’s the Johnson & Johnson strategy of getting in when they’re young.”

The next iteration of coworking spaces, according to Hidary, will be vertical-specific. “There’ll be dedicated spaces for tech companies, one for green companies and so on,” he said. “Developers need to be thinking about how to cater to these clusters.”