Riding the collaborative office roller coaster

Alexander F. Becker

Alexander F. Becker
Vice president, Real Estate Consultants of Colorado LLC, Greenwood Village

In the past five years, Denver has been a trendsetter for the proliferation of collaborative office facilities nationwide. Galvanize made a big splash when it launched during Denver Startup Week in 2012 and gave new relevance to the Golden Triangle neighborhood. INDUSTRY, on Brighton Boulevard, followed in 2014. This year brought New York-based WeWork to Denver and its facilities take up multiple floors of new office buildings in Union Station and on Platte Street.

These collaborative office spaces bring a big cool factor to Denver’s office market and represent some of the most prestigious office addresses in the startup scene. Companies can choose from desk rentals, workstation pods, small office suites or a combination thereof, and the inherent flexibility affords rapidly growing companies the peace of mind to change their footprint without moving.

In this light, the concept increases efficiencies, and tenants, in turn, have access to common areas with chic cafés, leisure areas (read: pingpong), a variety of conference and huddle rooms, and convertible spaces to host large events. Getting everyone out of their offices and into the common areas creates community and fosters dialogues, which leads to innovation.

We often work with companies that specifically request these types of offices when we start our search, because, in part, employers believe it is what their employees want. When we hand them the keys, they are excited and energized for their new office space paradigm shift.

The benefits of officing in a community like this can be very tangible – the business attorney who hangs her shingle in a collaborative office has a prospective client in literally all of her neighbors who may not yet have their corporate legal team in place. Two founders of a tech company are casually discussing their next fundraising effort, which is overheard by a neighbor who offers to make an introduction to a venture capital firm he knows in Boston and the tech company secures its funding within the week. These exchanges are happening hundreds of times per week in collaborative offices, and the Denver startup scene is thriving, in part, because of it.

But officing in a community rather than a building is a double-edged sword, and we now receive feedback regularly that there is so much going on at these facilities that employers see their employees foregoing productivity at their desk in lieu of attending an endless supply of events happening just outside their door. It would be hard for anyone to get work done when most offices are enclosed with glass walls and drop-in visitors are frequent when they see you are at your desk.

And the cost! At first glance, renting a smaller office suite with access to a plethora of common amenities seems like the prudent way to go, financially. Yes, you are paying base rent for a smaller suite than your company would otherwise need, but on a square footage basis, expect the rent to be considerably higher. Then add in common area maintenance, insurance and taxes for which you are paying your pro-rata share of those massive common areas.

Some collaborative office concepts have an additional and mandatory amenity charge on top of the triple net to cover front-desk services, refreshments (including alcohol) served regularly and event-related expenses. Landlords have shown a take-it-or-leave-it mentality when we have tried to cap these expenses or their annual increases during lease negotiations. Our clients, in turn, have accepted the risk. This means you are paying for amenities based not just on how often you use them but, more importantly, how often your neighbors use them in what appears to be the latest iteration of the tragedy of the commons.

Landlord-tenant relations also were noticeably different from the perspective of negotiating a lease and resolving day-to-day issues. These landlords often had no formal real estate backgrounds and presented themselves more as community partners than landlords, a message well received by the startup community. Yet as these office concepts have received major financial backing from investment organizations throughout the country, landlord-tenant relations have reverted back to the traditional, which has stung the tenant base.

While these may be relatively small prices to pay in exchange for the many benefits, a handful of our clients have now determined that being in a collaborative office environment is not for them. In some instances, this was because there simply was not enough vacancy in the collaborative office center to accommodate their massive growth. In other instances, it is for financial reasons or greater autonomy.

We have noticed, however, that when our clients have made the move out of the collaborative space, they do not have their sights set on the traditional office they came from. Their experience in the collaborative environment opened their eyes to a new way of space planning, interior design and workplace culture, and there is no going back.

They are now creating their own office spaces in the same style – but at half the annual square footage cost they were paying.

For some companies, collaborative office spaces offer a permanent office solution, while for others it acts as launching pad; unquestionably, these spaces are leaving their mark on the Colorado office scene. The analysis of your company’s financial and cultural ideology, however, will determine whether such a venue is the right fit for your business.

Featured in the September 2016 Office Properties Quarterly.

Edited by the Colorado Real Estate Journal staff.