Real Estate Weekly
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Opinion

Co-working is getting old; What’s next?

By Dror Poleg, Rethinking.RE

The co-working boom has spurred the real estate industry into action. Landlords and large tenants are rushing in to invest or launch their own concepts, but end-users are already moving on from the co-working craze.

Co-working is going mainstream. Tishman Speyer, one of the world’s largest real estate owners, recently announced Studio, a new co-working concept that the company will roll out in some properties in major markets like New York City, Los Angeles, and Frankfurt.

Other property giants are making similar moves. Even large building occupants are making bets, converting their space into coworking areas. PWC, for example, is encouraging employees to reserve a different seat or office instead of reporting to the same office every day. The company predicts that by 2030, co-working or flex office spaces will make up 30 percent of corporate real estate portfolios.

DROR POLEG

Those who aren’t building their own co-working spaces are investing in them: Rudin and Boston Properties backed WeWork, Brookfield invested in Convene, Blackstone invested in The Office Group. And the list goes on.

It’s not surprising that everyone wants in on the action. On paper, the ability to charge tenants higher prices for less space is a landlord’s dream. But in reality, the people how have to work in these spaces are showing signs of co-working fatigue.

A growing body of research shows that shared workspaces increase absenteeism due to sickness, elevate stress, lower productivity due to noise and distractions, and reduce social interaction. Once the quintessential modern workplace, workers’ enthusiasm for co-working environments is waning.

Some executives are trying to mitigate these effects by enforcing “library rules,” and scientists are working hard to make open-plan offices “slightly less horrible.”

But if co-working is all that bad, how did it become so popular to begin with? The economic imperatives do not fully explain why many individuals were initially so excited to move into co-working spaces. Seen through the lens of Clay Christensen’s theory of disruptive innovation, co-working was a form of Low-End Disruption. Simply put, co-working was attractive to customers who were priced out of the traditional office market, or were over-served by buildings that were charging them for “features” that they did not need.

This initial focus meant that co-working was indeed a major upgrade for its early customers. A shared space can be a huge productivity boost when you’re upgrading from “working at home”: freelancers cite the benefits of having to get dressed for work, to be surrounded by other motivated people, to be judged whenever you feel like snacking, and to know that you’re paying for your time inside the space.

For early-stage companies, co-working can provide a great way to mingle with prospective clients, potential employees, and fellow entrepreneurs. But what seems like an upgrade for a freelancer or a small team with few options, is actually a downgrade for high-value employees in larger companies. As a result, the co-working model falls apart once you try to apply it to mainstream office users.

Even WeWork realized this, and started shifting away from co-working toward providing private, fully-furnished offices to enterprise customers in a shared space.

In doing so, WeWork is moving towards the model of companies such as Breather, which has been providing private, airy spaces to companies such as Tesla, Uber, and Spotify since 2013. Breather (which I advise) operates on the assumption that over the long term, companies value employee productivity and well-being more than the tangible savings that come from increased density.

Interestingly, such companies do like to “share”, but their idea of sharing is a very different one: having access to private space when they need it, and allowing others to use the same space when they don’t. This way, everyone gets access to quality private space while avoiding strangers and distractions.

A good analogy would be Uber — the company’s idea of sharing is to provide every individual with a private driver. Uber did not invent the bus (a “shared” car). Instead, it developed software that optimizes access to a scarce resource, providing an optimal private experience for every individual.

Real estate is now heading in the same direction. Everyone wants privacy, limited distractions, great design, and better air. Software can help allocate resources efficiently to facilitate this and empower companies and individuals to produce their best work.

This is not to say that all of us will soon be sitting alone in sound-proof boxes, staring into computer screens. Quite the opposite, the best companies will offer their employees the ability to walk in and out of spaces that are optimized for the task at hand: a brainstorming session, a client presentation, a team meeting, a call, focused work, or even quiet meditation.

Landlords are hoping that “co-working” is the answer to keeping up with customer needs. But the reality is that the space of the future is not a single space, it’s a network of locations, connected together by sophisticated software and a layer of other services. And software is a field that landlords cannot master on their own.

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