With an estimated 43 percent of the U.S. labor force working remotely at least some of the time and the sharing economy in full swing, it seems that shared office space is the next major opportunity in real estate. In fact, according to estimates by JLL, flexible office space will grow to 30 percent of all office stock by the year 2030. This move comes as more and more millennials in the workforce are embracing shared products and services and, coincidentally, large retailers are reducing the size of their stores, which is causing property owners to seek new opportunities for their vacant retail space.
The biggest question for property owners is can a coworking space fill a retail location with the same impact and profitability as the standard retail tenant? According to our recent report, coworking is a viable solution for vacant retail properties as it increases foot traffic by providing a guaranteed daytime population. The added foot traffic also helps to bring new life into shopping centers and can attract new retail tenants and shoppers.
Coworking as an industry also is experiencing rapid growth. Coworking space in retail properties will grow at a rate of 25 percent per year through 2023, with a majority of coworking spaces either located in malls, street-front or urban retail locations, according to our firm’s estimates.
Coworking spaces currently are looking at retail properties in specific areas and coworking tenants often seek out space in neighborhoods with high walkability. In fact, 33.3 percent of coworking locations are in areas that were ranked as a “walker’s paradise,” which means that daily errands don’t require a car. Coworking tenants also target mid- to top-tier retail properties in areas with above-average household incomes. The average household income within a 3-mile radius of coworking retail spaces is approximately $100,000.
The growth of coworking also coincides with the diversity of coworking properties. There are four major types of retail coworking properties currently on the market:
- Retail launchpads;
- Telework hubs;
- Business boosters; and
- Creative coalitions.
Each of these coworking spaces is tailored to different functions with specific amenities to appeal to members.
One of the major types of coworking spaces moving into retail locations are retail launchpads. A retail launchpad is geared toward small brands looking not only to have an office space but also to have access to a fully functional retail space. Most of the retail coworking formats incorporated some form of retail selling space within their walls, including showrooms, small shops, and food and beverage. Because of the benefits they provide to their members and the locations they look to be in, retail launchpads often are the priciest coworking space, with an average price per square foot cost of $404 per month.
The most common type of coworking space is known as a telework hub, which represents 78 percent of all the cases looked at in our report. They often attract a mix of corporate office workers, entrepreneurs and creatives, and they can be found in a variety of markets and retail property venues. Because telework hubs attract a wide array of businesses, they seem to be the most likely to backfill the vacancies in midlevel retail centers.
For example, with Toys R Us closing 700 locations in prime retail markets, landlords are looking for alternatives to fill the space. Telework hubs are a good solution since larger locations in prime markets take up an average 31,000 square feet of space, which is around the same footprint as a typical Toys R Us store.
Business boosters are a place for entrepreneurs and freelancers to grow by offering business development tools such as capital, consulting services, creative support, specialty equipment, classes and mentors. Seventy percent of business boosters are located in traditional street-front retail buildings, community and neighborhood centers. Due to their clientele, they often choose to move into smaller spaces with the average size being approximately 10,000 sf, which makes them a good choice to backfill vacancies in midlevel neighborhood centers.
The final category of coworking space is the creative coalition, which, as the name implies, offers workspaces and a community for artists, makers and creatives. They specifically cater to this group by offering specialty equipment like 3D printers, welders and dark rooms. A large majority (75 percent) of these spaces are in urban areas and often are in mixed-use neighborhood centers. The major benefits of having a creative coalition as a tenant is that they often draw in millennials, combine community events with retail space and attract additional patrons, which raises the profile of the property.
With the recent closures of major retail chains, some landlords have been forced to become more creative when backfilling vacant retail space, especially in more suburban and neighborhood centers where additional stores aren’t always the solution. According to our research, 54.7 percent of coworking spaces analyzed were in suburban locations. With 52 percent of millennial homebuyers purchasing homes in the suburbs, the drive to add coworking spaces to suburban neighborhoods will only increase. This is great news for landlords looking to add tenants who offer increased foot traffic, a guaranteed daytime crowd and new offerings from smaller brands to diversify the shopping offerings.