Hines, Equity Office Look To Crack The Co-Working Code
Two of the largest U.S. office owners are recognizing the popularity of co-working spaces and looking to provide these flexible workspaces on their own. But they first must gain an understanding of the business model.
Equity Office and Hines have both issued requests for proposals in pursuit of business partners to gain knowledge of co-working spaces like WeWork, Reuters reports. The move comes in response to the growth of co-working firms, which are increasingly signing large corporate clients that traditional landlords would normally expect to sign for permanent workspace.
Green Street estimates co-working is 50% more profitable than traditional office leases, but only when operated by a seasoned provider. The analysis firm advised against office landlords building the model themselves.
“Significant scale, know-how and brand awareness would be required to operate profitably, and providers like WeWork are already miles ahead on all of the above,” Green Street wrote in a report.
When Amazon expanded its Greater Boston presence, it did so by opening in a WeWork in the city’s Back Bay neighborhood, making the co-working company both a tenant and a competitor to its landlord. Amazon did the same in 2 Herald Square in Manhattan, taking a full 122K SF WeWork space in a 354K SF building owned by Sitt Asset Management.
Manhattan has become a pinnacle market for co-working due to its building boom, young workforce and job surge. WeWork bought Lord & Taylor's 103-year-old flagship building on Fifth Avenue for $850M in October. The 650K SF building will be the company’s headquarters after extensive renovations.
The deal also included an agreement for the company to open locations at Lord & Taylor parent company Hudson Bay Cos.’ stores in Toronto and Vancouver, Canada, and Frankfurt, Germany.
Traditional landlords who have been focused more on asset value than tenant needs are now looking to change that to court a younger workforce that will eventually make office space decisions. RXR Realty is partnering with Convene, an on-demand provider of meeting space, on space at its 26-story office building at 530 Fifth Ave. in Manhattan.
Equity Office’s RFP was largely inspired by the company looking to find a way to make its 1.3M SF Howard Hughes office complex in Los Angeles more attractive to tenants, according to Blackstone Group (Equity Office’s parent company) Head of U.S. Asset Management Rob Harper. He told Reuters he expects responses to the RFP within days.