A recent report from coworking listing website Upsuite found that one in five North American coworking spaces had to close down or change leadership last year during the midst of the pandemic. This left landlords with around a 25 million square feet fallout.
For many coworking and flex office firms, build-outs can cost upwards of 25% more than traditional offices to construct.
“Truly the build-out, in my opinion, is a complete loss unless you’re able to find that one in a million tenant who wants to sort of take over the existing design and make it their own,” said Jeff Garrison, partner at commercial real estate developer S.J. Collins Enterprises. “That’s very difficult to do because [each company’s offices] have their own personalities that they try to reveal through their design.”
The typical model for office buildings involves landlords building out space for tenants, then making the money back of those costs from long-term leases.
However, coworking operators have had to give back huge amounts of space over the past year. For instance, WeWork and Regus gave back a total of 165,000 square feet in Atlanta alone according to Colliers research. This, along with the numerous closures of flexible offices across the country, has been damaging to both landlords and the industry.
Business models of coworking spaces aren’t the only challenge for landlords to overcome, but the design of these offices are also an obstacle.
Because coworking is a shared space among different professionals and companies, the layouts typically don’t jive with traditional office tenants who want a lot of private space and cubicles.