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Shared Office Space: The Next Frontier in Corporate Real Estate

 

An increasing number of business are choosing co-working spaces as an alternative to suburban office parks or expensive offices closer to downtown. Co-working spaces, once targeted towards freelancers and start-ups, have become increasingly attractive to large businesses, which may want to experiment with a small footprint in a new city or neighborhood before committing to a full office. It also offers companies the ability to respond to their changing needs for space. In recent years, Fortune 500 companies such as General Electric, Dell, Bank of America, Lyft, Airbnb, Salesforce.com, Red Bull, Staples, and Dropbox have all adopted co-working office space as one of the solutions to their real estate needs.

Workville, a shared office space in NYC, allows startups access to premium office space that otherwise might be financially out of reach. Offerings range from shared space that resembles a comfortable hotel lobby, to dedicated desks, private offices, conference rooms, and event space. Employees from companies like ZipCar, Refinery Hotel, and AllyBoost Events have daily opportunities to interact and cross-pollinate ideas with start-up CEOs. The collaborative environment provides for an important need of millennial workers- a workplace with a sense of community.

CBGE Groups published a report in January that estimated co-working in the U.S. is estimated to experience a five-year compound average annual growth rate of 21 percent. While investors should always consider their age and tolerance for risk, there are many options for investing in co-working space. Real estate investment trusts allow investors to invest in a portfolio that includes co-working space properties, such as Vornado Realty Trust or Boston Properties. Mutual funds may also include shares in co-working companies, such as Fidelity’s Contrafund or T. Rowe Price’s New Horizon Fund. It’s possible to invest directly in a mutual fund with Regus, the largest operator of co-working space in the world. There is also the option to invest in a syndicate, where individuals co-invest through a site like angel.co with venture capitalists. Finally, investors may also consider a cash-flow investment with an individual project, or stock purchases at an initial public offering.

Important considerations are the leadership of a co-working space property, the quality of the facilities, and location. Investors should also be aware of pending changes to the Generically Accepted Accounting Practices, which will affect commercial real estate leases. Long term leases will be considered liabilities starting 2018, which will make short-term leases much more attractive.