Contact Us
News

Is DC's Co-Working Sector Slowing Down?

Co-working companies were a driving force behind DC's office demand last year with 10 major leases signed. But the sector has experienced a four-month drought since the last new co-working lease was signed, and industry leader WeWork is providing major tenant incentives to try to fill all of the supply it brought to market last year. 

WeWork Met Square

In January and February of 2016, four DC-area co-working leases were signed: two from WeWork, one from Spaces and one from Serendipity Labs. That was followed by three months with no new leases, showing that a quarter-long drought is not unprecedented. But the pace picked up, and 10 leases were signed in 2016 for 600K SF total.

The last co-working deal in the region was WeWork's 69K SF Capitol Riverfront lease in November, a full four months ago. October also had no new leases, but The Yard pre-leased 32K SF on Capitol Hill and WeWork signed a 93K SF lease in Tysons in September.

Cushman & Wakefield senior director Mark Wooters said co-working continues to be an active sector of the market but he thinks companies are currently in a wait-and-see mode to see how the market responds to all of last year’s supply.

“I don’t think work space absorption has been as robust in certain locations as they hoped,” Wooters said. “WeWork does well but they’ve opened a tremendous amount of space. With so much of it coming online at the same time, people are seeing how this ends up affecting the market.”  

Delta Associates senior associate Jonathan Chambers said the lack of new leases could be part of an overall pause in the leasing market caused by uncertainty after the November election. Chambers expects the sector will pick up, but he predicts 2017 will only see three to five new co-working leases signed, a major drop from last year.

WeWork Met Square

With all the new supply co-working providers like WeWork brought to the market last year, they are putting more effort into trying to fill those spaces, a potential cause for the leasing slowdown. 

WeWork is offering 12 months of free office space, Bisnow has learned, to existing members at five of its largest locations: K Street, Dupont Circle, Tysons, Manhattan Laundry and White House, the new name given to the 117K SF Met Square location it opened in December, its largest location in the region.

The free office space will be given to any existing members who want it, up until the limit of 250 desks are filled. Companies do not have to make any commitment beyond the 12 free months, but presumably WeWork hopes it will lead many of them to sign expanded leases for the following year, once they get used to having new space.

WeWork officials said this is not a sign of weakness. "In 2016, WeWork doubled its buildings, cities, countries, members and revenue run rate," the company said through a spokesperson. "We are delivering on our strategy and executing against our plans and DC is no exception."

The spokesperson said the company is still expanding in DC and plans to sign at least one new lease in the next quarter. In June, WeWork DC city lead Kley Sippel said to expect WeWork to grow at the same rate in DC as it did in markets such as New York, where it now has at least 30 locations. 

The company has previously had free space initiatives, offering four months, and found that many of the companies signed on for at least some of the new space, and company officials deemed it a success. Putting more people in the expansive new locations could improve the community activity and lead to more new leases being signed.

While the strategy is clear, the company is still leaving at least $1M on the table, based on its current rates, by giving away this much space for free for so long. 

"Wow," Chambers said upon learning about WeWork's 12-month offer. "That's a pretty big incentive. Part of the reason might be when there's a ton of new supply, they want to fill it up quickly and get it stabilized. In the office sector, offering three or four months of free rent on a long-term lease is normal, but this is three times that, and [tenants are] not signing a commitment." 

CORRECTION, March 17, 10:30 p.m.: The second image in this story is of a private office in WeWork White House. A previous version of this story incorrectly referred to them as hot desk. This story has been updated.