Coworking has been embraced by many real estate investment trusts (REITs) across the nation. Shared office models have established a permanent shift among how employees work, which has created a pathway for U.S. office REITs.
Still, the rapid growth carries rent risks that need to be managed. Many operators avoid such risks by associating with less established tenants, but this model can hold also brings asset/liability that favors customer commitments. This leaves REITs unable to offset the high capital of certain office assets.
Now, many U.S. equity REITs and other real estate companies have gone public with both the benefits and risk that come with contracting a space out to coworking tenants.
“Long-term leases are a key positive office sector attribute that help balance high capex and leasing costs,” said Stephen Boyd, the Senior Director in Fitch Ratings’ Corporates group.
A REIT landlord that leases spaces to coworking provider under a traditional model is more credit friendly, but a fee-based model where the landlord has a better chance for greater cash flow risk is not as much.