Co-Working Could Be The Cure For What Ails Philly's Office Market
As Philadelphia’s office real estate market nears its peak and is increasingly divided between lavish Class-A buildings and stagnant Class-B and C product, co-working is emerging as an answer to many questions about the industry’s future.
Co-working spaces currently make up 1% of office real estate stock in the city, but research predicts it could rise as high as 30% when all is said and done. The sector's growing reliance on technology, mobility and the Millennial workforce all play into co-working’s hand, and is impacting Philly’s business community even now, with its meager market share.
“If we’re at 1%, even if the 30% is wildly optimistic, there’s a lot of room left in the market,” Benjamin’s Desk partner and director of real estate Jerre Riggs said.
Philly-based Benjamin’s Desk is one of the largest co-working operators in the city, though the field is growing increasingly competitive. New York-based WeWork has multiple locations, DC-based MakeOffices has a space in Center City, and New Yorkers Joynture and The Yard each recently opened Philly locations of their own.
All of these operators promise more Philly locations in the future, and they won’t be alone — more out-of-town co-working businesses are looking for space in Philadelphia, according to Cushman & Wakefield senior research analyst Vincent Planque, including London-based Startup Home. Co-working is growing aggressively, and demand appears to be meeting it.
“Even with all that’s happening in Philadelphia, it’s a relatively untapped market still,” Planque said.
The key to co-working’s longevity is its diverse occupiers. The commonly held image of a co-working space as a hotbed of startups and small companies is still true, but more and more companies also are renting space for small teams, or as satellite offices, without having to sink as much money into property management.
“There are a lot of businesses out there that have their own space that don’t need to be in co-working spaces, but they’d benefit from taking their creative teams and putting them in a more open, collaborative environment,” The Yard founder Morris Levy said.
Representatives from Benjamin’s Desk and MakeOffices confirmed that multiple businesses with headquarters in the Philly suburbs have rented co-working space in the city to ease the burden of reverse commuting for those who prefer to live in urban environments. In a small way, it is already beginning to address a huge concern for commercial real estate — how to bring companies from the suburbs into the city.
The trend has not gone unnoticed. The Philadelphia Department of Commerce launched a program called Gateway Philly in March to give financial incentives to businesses headquartered in the suburbs that wish to dip a toe in the urban waters.
If such a company signs a one-year lease in a co-working space (or any landlord willing to do short-term leases) with at least 20 seats, the Department of Commerce has promised $1K of reimbursements for each seat, up to $30K.
“The days where someone needs to be in a suburban headquarters all week are sort of fading away, and [companies’] desire to have access to urban centers and amenities is something we’ll continue to see grow,” Riggs said.
For those who live in the suburbs and dread the standard commute, co-working may be on its way to the rescue. Benjamin’s Desk is opening a location in Ambler in the near future, and MakeOffices, which has locations in the DC suburbs, sees potential in Philly’s suburbs as well.
“There are commercial areas — King of Prussia or Malvern, for example — with plenty of businesses out there,” MakeOffices city lead for Philadelphia Danika Ervin said.
And just as more companies look to expand into co-working spaces, co-working could expand past its traditional model. Benjamin’s Desk now manages Pennovation Works, where they provide amenities, building management services and the digital network that connects all of their spaces, without being on the lease. The company is in talks to bring that model to more traditional office buildings as well.
“Landlords are starting to realize maybe they can engage these companies by bringing us in and using us as an amenity for their building,” Riggs said. “Some landlords will use us as a distinct amenity, but also as a pipeline for future tenants, such as entrepreneurs who otherwise wouldn’t have the capital to lease space in such a building.”
Benjamin’s Desk also recently announced a partnership with DC-based startup incubator 1776 to expand on the part of the co-working business that is most heavily romanticized — startups finding investment capital to grow thanks to their co-working network. With 1776, Benjamin’s Desk hopes to expand the potential investor pool for its startups from local capital to global.
In effect, co-working could help close the gap somewhat between Class-A office product and the rest.
“The Yard’s location is a perfect example,” Planque said. “I thought their location on 11th Street would be demolished before they took it over, and now it’s a beautiful building with a Honeygrow on the first floor.”
WeWork and MakeOffices tend to pick Class-A buildings for their space, but Benjamin’s Desk’s most recent acquisition in the historic-yet-run-down Studebaker building will be another example of co-working as a force of urban revitalization.
With the rest of the commercial real estate market beginning to slow down, co-working has a major opportunity to seize on what already sets it apart — its ability to connect the suburbs to the city, and to draw closer the values of Class-B and Class-A buildings, to say nothing of growing the businesses that utilize it — and truly become a driving force in Philadelphia’s economy.