Why You Might Rent Your Next Office Space

From labor disputes cases to labor and employment publications, for your research, you’ll find solutions on Bloomberg Law®. Protect your clients by developing strategies based on Litigation...

 

By Madison Alder

Thomas Kamm’s German shepherd lies on the floor of the architecture studio, watching through a glass wall as people pass by in the hallway.

Just around the corner, past couches and cold brew, Michael Lovett manages his company while snacking on chips purchased from one of his company’s high-tech vending machines in the office.

Kamm Architecture and Vagabond Vending run their businesses out of offices they rent from WeWork, and they’re part of a growing trend of businesses using shared workspaces.

VIDEO: Rentable Workspace Companies, Customers Talk Growth

Whether it’s saving money on overhead, easing the commuting headache for employees, or being able to use a network of professional spaces across the globe, businesses of all types are fueling the rise of flexible workspace companies.

And each company in the rentable workspace market has its own unique take, providing things like a community environment, an international scope, functional services, or accessibility.

The WeWork location set up in the shell of an old Wonder Bread factory is one of 10 locations in the Washington, D.C., area and one of 226 worldwide.

WeWork Cos. Inc, which is backed by SoftBank Group Corp., was assessed earlier this year at about $20 billion, making it the world’s fifth most-valuable startup. Knotel Inc., another rentable space company, recently announced plans to go international and triple its New York City locations.

In the past decade, multiple companies like WeWork and Knotel have hit the market, including LiquidSpace Inc., ShareDesk, and WorkSocial, to name a few.

But the idea isn’t exactly new. London-based industry-leader Regus has been in the rentable office market for almost 30 years. And the newer iterations of the concept can’t yet match Regus’ international scope.

“We’re still in growth-mode,” Michael Berretta, Regus’ vice president of network development, told Bloomberg BNA. “We’re adding countries every month and adding new trade areas in cities we already operate in.”

Regus’ revenue has steadily increased every year since the recession, where it experienced a slight drop. The company brought in about $1.6 billion in fiscal year 2010, $3 billion in fiscal year 2016, and is estimated to bring in about $3.2 billion in fiscal year 2017, according to Bloomberg Terminal information.

Revenue data wasn’t readily available on the Terminal for WeWork, LiquidSpace, or other rentable workspace companies Bloomberg BNA spoke to for this report, as they’re all privately held.

Finding a Niche

“You’ve got to own your niche and got to own your space,” founder and CEO of Office Evolution Mark Hemmeter told Bloomberg BNA. Office Evolution’s target market is the “urban professional.”

Hemmeter was a rentable office space customer first and got the idea for his company when he realized the locations of the city-based rentable spaces weren’t working for him. He wanted to create a space for professionals outside major cities.

The company also uses a franchise model to expand its scope, Hemmeter said. The company’s goal is to open about 50 locations per year, or about one per week, he said.

Meet the Renters

Bloomberg BNA talked to users of these flexible spaces across the Washington area to discuss why they chose to rent their office space.

Mobility is the reason Jacques Dobatien chose the rentable space from Regus.

Traffic in Washington makes it difficult for people to travel from area to area during the work day, Dobatien told Bloomberg BNA. “So, I said, ‘You can’t come to me, I’ll come to you.’” Dobatien is president and CEO of Ecco Homes, a D.C.-area home design company.

Dobatien said he’s used the Regus offices in Georgetown, Virginia, and Maryland, among others, to move his business around and meet with clients. “That is what Regus gives me – that flexibility to be able to meet the client in a professional environment without committing myself to (the) high expense to have many offices.”

CARR Workspaces is the choice for Rebecca Taylor, senior vice president of strategy for the National Center for Manufacturing Sciences. She told Bloomberg BNA she uses Carr because the professional, permanent space “raises the stature of the organization.”

“Our headquarters is in Michigan and this is our Washington office—I am the Washington office,” Taylor said at the kitchen table of Carr’s K Street office.

Taylor said she uses many of the services the space offers like answering phone or taking packages when she is away. She also uses the Carr workspace network across the county while she travels to work or host meetings.

Over at WeWork, Kamm and partner Kelly Saunders told Bloomberg BNA they found rentable workspaces while looking for a small space their architecture team could grow into. Most of those spaces they found in their searches were too big and would have required them to rent out some of the space themselves, Kamm said.

“We haven’t had to carry the burden of the overhead of additional office space without knowing whether or not we’re going to be able to use that space,” Kamm said.

Within the team’s first year in their WeWork location, Kamm said they hired workers and with each one, added the necessary space to accommodate the new size of their business.

More Than Startups

The rentable workspace community extends far beyond small businesses and tech-startups, industry leaders told Bloomberg BNA. Renters in the spaces include freelancers, organizations, law firms, and large companies.

WeWork’s Dave McLaughlin said many people assume the rentable workspace membership is mostly tech startups, while “those folks are here and they’re definitely an exciting part of this,” he said they’re only a portion of a diverse membership.

“It’s much, much broader than that,” McLaughlin said. Law firms, insurance agencies, marketing agencies, nonprofits, and large companies are also using these spaces, he said.

The environment also lends itself to the freelance workforce.

Regus’ Michael Berretta, who has been in the rentable workspace industry almost as long as his company, said another contributing factor to the increase in the rentable workspace industry is the rise in the freelance or “gig” economy.

“It’s kind of hand in glove,” Beretta said. “We’re offering exactly what they need. They are looking for ultimate flexibility, they’re looking for collaborative workspace, they’re looking for places where they can interact with other companies. We’re kind of a natural provider of that type of an environment.”

A Tech-Driven Twist

Not all companies in the rentable workspace world model their business on owning and managing spaces to rent. LiquidSpace, for example, operates online and mobile platforms for users who want to use space and users who want their space used.

“It operates in much the same way that a platform like Airbnb does for rental space properties,” CEO and Founder of LiquidSpace Mark Gilbreath told Bloomberg BNA.

LiquidSpace is a technology company first, Gilbreath said. The company’s platform provides users with space options, from hourly meeting rooms, to coworking spaces, to long-term rental spaces.

Gilbreath said his company’s goal is to “bring that layer of customer experience to the great space operators that are out in the market.”

Carr Workplaces is one of those space operators.

“We are not a technology company—we very much recognize that,” Ashley Buckner, senior vice president of sales and operations for Carr Workplaces, told Bloomberg BNA.

Carr Workplaces, an office space provider founded in the 1990s, has seen the rentable workspace world change over the years. The company’s relationship with LiquidSpace has helped it connect with the digital market it wasn’t reaching before, Buckner said.

The collaboration with LiquidSpace “is so important to us and has really helped our business because it makes us more findable, it brings exposure to our spaces that maybe we wouldn’t have, and then ultimately, it drives revenue through,” Buckner said.

Gilbreath said it’s important to remember that the rentable workspace market has been around for decades but “it’s really been the last five or 10 years where that world has exploded” with new mediums of space.

“So, what’s the future hold?” Gilbreath said. “Real estate should be as liquid and fungible as any other asset class that consumers now discover and transact online.”

To contact the reporter on this story: Madison Alder in Washington at malder@bna.com

To contact the editor responsible for this story: Terence Hyland at thyland@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Labor & Employment on Bloomberg Law