When PricewaterhouseCoopers (PwC) recently modernized the majority of its 83 U.S. offices, it added more common space and made each office smaller, reducing the space per employee by 30%. “More and more we are a virtual company,” says Toni Cusumano, a principal in the company’s global human capital practice. “People don’t go into our offices the way they used to. We’ve shifted down.”
PwC’s shrinking office space is a common phenomena. Office workers in North America had 176 fewer square feet of personal space in 2012 than they did in 2010, according to commercial real estate association CoreNet Global, and at least anecdotally, that trend has continued. Meanwhile, more people are working independently. As work changes, so has the space that best accommodates it.
Companies like WeWork, which offers small offices within a shared community of workers on a monthly basis and recently raised funding at a $16 billion valuation, have helped building owners adapt as the renting of vast swaths of cubicle farms in three- or five-year increments falls out of style. But as these real estate developers have watched WeWork rise, they’re looking for ways to more directly tap into the trends that have made the company so successful. “When you look at the growth of, for example, the coworking companies, it’s clear that long-term leases with little flexibility are probably not entirely the way of the future,” says Deborah Boyer, EVP and director of asset management for the SWIG Company, which owns almost 9 million square feet of real estate. Some real estate companies have developed their own prebuilt spaces to accommodate growing companies. Others have partnered with WeWork to design entire buildings with a new type of work in mind.
If WeWork is the Marriott of work—it fills spaces with receptionists, refreshments, and programming the same way a hotel company designs and operates its space—then companies like LiquidSpace, PivotDesk, and ShareDesk are work’s Airbnbs, offering flexible small work spaces. They allow businesses with excess office space or unused conference rooms to list them for rent by the day, week, or month. Initially, many advertised as “on-demand” meeting space. PivotDesk initially focused on monetizing extra desks at offices occupied by quickly growing companies, which often sign long-term leases for spaces that are larger than they might need for the first year. The 2 million bookings LiquidSpace has facilitated have mostly been inside hotel conference rooms, in coworking spaces, or in work centers.
But as companies like WeWork continue to prove demand for flexible, short-term leases, these companies have been creeping into a similar territory, facilitating coworking spaces or even longer-term rentals on behalf of building owners. ShareDesk, which advertises office space in 4,500 venues, also makes software tools for coworking spaces. PivotDesk says that 30% to 40% of our customers come through partnerships with brokers, landlords, and developers, including partnerships with Jamestown, a real estate company that used the platform to fill an “innovation and design” development in Boston. And last May, LiquidSpace began to accommodate bookings ranging in length from a couple of months to a couple of years (but still shorter than the typical three-year office lease).
When demand for longer-term leases grew quickly, LiquidSpace CEO Mark Gilbreath began to think of real estate developers—not just hotels, coworking spaces, and startups with extra desks—as potential suppliers for LiquidSpace. Even without amenities of coworking, believes Gilbreath, there’s a market for smaller spaces and flexible leases. “A good amount of WeWork demand is environment, the community they provide,” he says. “But there’s also a large portion of their clients who are simply seeking flexibility.” That’s something that LiquidSpace can provide without signing commercial leases or hiring community managers. In November, the company launched its first two prototype spaces in San Francisco for altSpace, an effort that might best be described as “coworking light.”
Each altSpace office comes fully finished and furnished. But instead of paying an operating company like WeWork when they move into the pre-ready space on a month-by-month basis, tenants deal with the owner of the building, in this case the Swig Company. Instead of taking a fee for the whole value of a lease upfront, like a broker would, LiquidSpace takes a 10% cut of the rent every month. Developers so far have used LiquidSpace to market spaces that are too small to attract the attention of brokers or to lease to a big coworking company. LiquidSpace provides a quick, standard lease that saves them hassle and legal expenses.
Boyer, of The SWIG Company, emphasizes that it’s not necessarily a choice between coworking and leasing through a platform like LiquidSpace. In addition to altSpace, The SWIG Company also leases to WeWork. Though only in its prototype phase, something like AltSpace could potentially accommodate companies that grow out of a coworking space. “So you don’t lose them as a tenant,” she says, “you can accommodate them.”
Soma Capital Properties, another real estate company that leases to WeWork, uses LiquidSpace to rent a group of small offices it owns in Encino, Los Angeles. “It’s very management-intensive,” David Smith, a partner at the firm, says of the WeWork model. “Our expertise is taking properties that need to be repositioned in the marketplace. That’s our expertise. It’s not about renting space like WeWork does.” By pairing LiquidSpace and an on-site manager, Soma Capital Properties offers a lighter, less curated version of the small, flexible leases WeWork sells as memberships. “[LiquidSpace] relieves some of the administrative stuff,” Smith says. Other property owners who use an “Airbnb for office space” aim to attract more progressive companies, accommodate potentially high-growth startups, and fill empty spaces before presenting them to potential long-term tenants.
The trend has created a new niche for real estate that might otherwise have sat vacant. “Airbnb opened up a new category of hospitality, and the same thing is happening in office space,” Gilbreath said. “Smaller spaces that real estate brokers wouldn’t have had access to before are now becoming easy to find.”