As Workplace Needs Shift Outside The Office, Landlords And Coworking Providers Seek Partnerships To Get In The Game
The evolving white-collar workforce no longer operates solely from the office as previous generations did, and workplace-as-a-service providers are taking advantage of that shift by moving workspaces into new realms.
While some flex and shared-office companies have grown beyond the traditional office into retail, hospitality and even residential spaces using their own brands, others are expanding through partnerships with major landlords to scale, such as Industrious' new partnership with Macerich, the latest move in the coworking company's growth strategy.
Brooklyn-based coworking provider Industrious inked a deal with shopping center real estate investment trust Macerich last week to transform a former Barney’s store into coworking space at its Scottsdale Fashion Square center in Arizona.
The national partnership includes opening several Industrious locations within Macerich properties.
“In the attempt to build a highly amenitized workplace with a broad diversity of spaces, if you put the workplace inside of a mixed-use setting rather than a traditional office building, that allows you to expand and elevate the offering,” Industrious co-founder and CEO Jamie Hodari told Bisnow. “Being in a mall setting or a retail setting supercharges that.”
This is not the coworking provider’s first partnership with a major landlord. Industrious entered a license agreement with Blackstone Group-owned EQ Office in June to bring collaborative workspaces to the Howard Hughes Center in West Los Angeles, with plans to operate other locations down the line. Industrious will manage 100K to 140K SF of flex-office suites in the six-building, 1.4M SF Howard Hughes Center.
While competitors like coworking giant WeWork have opted to expand through the creation of various business lines under the “We” banner — such as its shared-housing product WeLive, wellness concept Rise by We, retail concept WeMRKT and office management product Powered by We — Industrious aims to partner with major owners and operators in the real estate space to scale. The company is particularly seeking out those owners looking for new and improved ways to revitalize their properties by getting in on the coworking craze, even if that means partnering with a third-party provider to do so.
“We really believe that the future of the workplace as a service industry is one with much tighter integration and partnership between workplace operators like us and landlords," Hodari said.
“Navigating this shift towards companies outsourcing their workplace needs is a really important thing for landlords to get right, and I think a lot of them have taken stock of that and a lot of them have recognized the importance of figuring out what their play is in this sector — and it’s just so clear that they are better off doing it in partnerships with operators like us rather than staying on the sidelines."
Behind The Deal
Macerich, one of the largest owners and operators of premier retail real estate in the country, owns 48 high-end centers, or 52M SF of retail in top markets across the U.S., including New York, Chicago and Washington, D.C.
Scottsdale Fashion Square in Arizona is one of Macerich’s latest redevelopment projects. The 57-year-old mall is undergoing a luxury facelift that includes the addition of mixed-used elements such as Class-A residential, office and hospitality space along a 7-acre parcel north of the mall. The nearly 2M SF mall boasts more than 200 shops and restaurants, including premier tenants like Cartier, Louis Vuitton, Gucci and Tiffany & Co.
"Macerich is on the cutting edge when it comes to adding exciting, traffic-driving new uses to our market-dominant retail properties across the country," Macerich CEO Art Coppola said in a statement. "Our settings deliver top-tier, built-in amenities for today's professionals, which is why a partnership with experience-focused Industrious makes so much sense.”
Not including the recent deal with Macerich, Industrious has about 50 locations within 33 cities across the U.S. Hodari said the company, founded in 2013, is already strategizing plans for an international expansion.
“We’re working on that right now and we’ll probably have some exciting announcements on that front this fall,” he said.
The Rise Of Coworking In Retail
As retail landlords fight to stay relevant in this time of digital disruption and heightened experiential demand, owners are getting creative to fill vacant space.
Sometimes that looks like re-tenanting with more experiential concepts, other times that looks like repurposing the space altogether, bringing in housing, hotel or office elements and turning the development into a mixed-use hub.
While having shared-office locations at retail centers is still a fairly nascent concept, JLL expects the trend will gain momentum very quickly, taking into account that roughly 43% of Americans today work remotely, the commercial real estate services firm reports.
In its first-ever report on the rise of coworking in retail centers, JLL identified 75 coworking locations accounting for 1M SF in retail centers across the U.S. These shared offices tend to thrive in urban, densely populated, walkable neighborhoods.
“When you think about how much retail space is out there in the U.S. it's still early days. I think as these places continue to expand they’re going to need to start looking beyond traditional office space to places where the people are,” JLL Director of Retail Research James Cook said.
Coworking in retail is expected to grow at an annual rate of 25% through 2023, eventually accounting for 3.4M SF of existing retail product, JLL reports.
For New York coworking startup Spacious, a company that transforms restaurants during their off-hours into temporary workspace, this has already become a reality. Spacious operates nearly 20 locations in San Francisco and New York City, including locations at Corkbuzz, a wine bar and small-plate restaurant in Union Square in New York, and wine and bar lounge Press Club in San Francisco. The company recently closed on a $9M funding round with plans to open 100 more coworking locations within street-level storefronts.
“The distinction of different types of spaces in our lives has really contracted in the last few decades. In today’s world the most beautiful restaurants look like the most beautiful bars and the most beautiful coffee shops and inviting hotel lobbies,” Hodari said. “As a result, the idea that an office can only look a certain way [or] only be on the 30th floor of an office building has really changed.”
“Right now we’re [experiencing] something of an economic change. We’ve got more people who are entrepreneurs, more people who are part of the gig economy — these people who work for themselves need an inexpensive place to get out of the house and work,” Cook said.
WeWork is contemplating its next move in the retail space as well. The coworking giant acquired the 103-year-old Lord & Taylor flagship along Manhattan’s Fifth Avenue for $850M last year, with plans to revamp the building to accommodate coworking on the top eight floors and 150K SF of retail on the first three floors. Included in the deal were plans for WeWork to open leased locations within Saks Fifth Avenue and Hudson’s Bay stores in other markets, starting with Toronto and Vancouver in Canada and Frankfurt, Germany.
WeWork declined to comment about its expansion strategies in the retail space.
Bumps In The Road?
Building out retail space for coworking is not devoid of challenges.
Aytan Litwin, founder and CEO of White Space — the company that managed the manufacturing and installation of the custom interior work at WeWork in Tel Aviv — said making sure the design of these retail coworking locations is modern and stylish will be key. Each shared space should generate energy and collaboration through both open and closed spaces, Litwin said, and making sure these elements translate in retail centers “will require creative space engineering and design.”
“The architecture inspiring coworking spaces has charm and distinction — brick walls, classic wooden floors (or polished concrete), high ceilings, lots of windows, interesting plaster work,” Litwin said.
Hodari said one hiccup Industrious has experienced working on its first retail location is ensuring it has the right points of entry for users.
“We think that for the people walking into work everyday, it’s going to be really exciting to work in a retail setting. But we’ve had to think a lot about what is the guest experience like if you have a client coming for a meeting. What is the entrance experience like — are they entering through the mall, are they entering through an external entrance?”
Another challenge Industrious is grappling with is whether to allow shoppers visiting the mall to use the workplace component for a few hours; this is a kink the company has almost completely worked out, Hodari said.
“Look, there are challenges to doing this. This deal took a long time to work out. Anytime you’ve got people doing things that are a little outside their comfort zone that can present a challenge …,” Hodari said. “But my gut is [telling me] that this will go well, the other locations we open with Macerich will go well and I think by a year or two from now this will become a much more common way to deliver shared workplace experiences.”