The New York City real estate market has struck gold in one of the fastest growing sectors in the city: co-working space. The next big real estate bubble continues to grow as more companies try to cash in on the trend.
In a city that has millions of square feet available for reinventing, companies that provide shared workspaces are starting to take advantage of the large amount of space. According to Crain’s New York, the total square feet of co-working spaces currently stand in the millions throughout the entire city.
“Manhattan alone has a record of 5.3 million square feet of shared office space, according to real estate services firm Cushman & Wakefield; and Brooklyn has about 1 million square feet, with another 400,000 feet to come in the near future”, according to a report from New York University’s Rudin Center for Transportation.
But what exactly spurred this recent growing sector in real estate?
The cause of this growing trend can be traced back to six years ago when Adam Neumann, a former Israeli navy officer, left his “eco-friendly co-working space,” GreenDesk. On a bet that he could reinvent the co-working market, he launched WeWork – New York City’s current dominating force in this real estate bubble. The company is currently valued at $16 billion, and has locations in 25 cities around the world.
“During the economic crises, there were these empty buildings and these people freelancing or starting companies,” Neumann said during an interview with the New York Daily News. “I knew there was a way to match the two. What separates us, though, is community. It’s not a trend for us. It’s a way of life.”
The philosophy was made in response to what Neumann considered the ‘I’ decade when companies were focusing on individuality, rather than trying to foster a collaborative community.
“iPhone, the iPod – everything was about me. Look where that got us? In a terrible recession,” Neumann said. “The next decade is the ‘We’ decade, where collaboration is the future of innovation. This generation watched big companies crumble. They have seen regimes overthrown by Facebook pages. If you look closely, we’re already in a revolution. We want to make it positive.”
Before WeWork there was Regus, another prominent company in the co-working space market. Both companies represent two different sides of presenting shared office space to the world; Regus sticks to the traditional executive-suite model, while WeWork creates co-working spaces with a newer and hip approach that caters to freelancers and creative types. Regardless of their philosophies, both companies have had a massive impact on this real estate bubble; however WeWork continues to rapidly grow.
Executive suits were never geared toward creative tenants, but that started to change when Midtown South became very trendy, said Jeff Nisanni of Marcus & Millichap during an interview with The Real Deal. WeWork became the dominator and took the business model to the next level.
Startups in the co-working space market in New York City are attempting to follow in WeWork’s footsteps. Companies such as Industrious, Blender, Grind, District, Fueled, the Yard, and the Vault are hoping to become next WeWork by taking a similar hip and trendy approach to co-working space. Other companies like PsychWorks, who focus on creating spaces for therapists, and Bar Works, “which repurposes pub and restaurants spaces and imposes a three-drink cutoff on its members (during working hours),” have taken a more specific route in order separate themselves from the crowd. Despite whatever approach each company takes, the demographic they are all trying to appeal to is the same: Millennials.
“It’s absolutely unprecedented,” Ken McCarthy, Cushman’s chief economist said to Crain’s. “This is a business that is attracting a very large demographic to a new and different work environment.”
Co-working companies are bringing a new aesthetic and atmosphere into the offices by tapping into millennials’ desire for trendy, amenity-filled spaces that foster a community. Offices that follow this mold usually feature a mix of open, communal spaces, and enclosed, private offices. Amenities such as specialty food and beverage services, outdoor recreation facilities like basketball courts, fitness centers, and dedicated parking spaces, are just a few services that are going to be installed in WeWork’s latest project, Dock 72, a new 675,000-square-foot commercial office building in the Brooklyn Navy Yard.
According to a 2016 report from New York University’s Rudin Center for Transportation Policy & Management, Brooklyn is becoming New York City’s hub for urban and economic development. The construction of co-working facilities in western Brooklyn has allowed the area to flourish, and will continue to grow.
“Piecing together information from a variety of sources, we estimate that as of the summer of 2015, there were 56 locations in western Brooklyn at which space for startups and small ventures was being offered, under construction, or planned,” the report says. “We estimate that to date nearly 1 million square feet of such space has been completed (most of it during the past ten years), and about 400,000 square feet is under construction or planned.”
Although the future in this industry does seem promising, not every startup will make the cut. If companies or startups do not take off, co-working landlords also face the risk of failing alongside their clients.
“As with many other startup ideas that get hot – think daily deals or food delivery – a bunch of new entrants rush in,” CB Insights CEO Anand Sanwal said to Crain’s.
“Many will fail. The ones that succeed are definitely going to benefit from a trend toward startups and independent contractors. That rising tide lifts the few winners.”
Although the chance of failure is present, Jason Bram, an economist for the Federal Reserve Bank of New York analyzed that there is an abundance of space available for co-working spaces to grow in New York City. Fields in technology, advertising, media, and internet are areas where revamped co-working spaces are highly welcomed. This is heavily reliant on employment rate in these fields – which is continuing to grow. Therefore, as long as employment rate continues to steadily rise, the co-working real estate bubble will not pop anytime soon.