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Office - Commercial property

The Flexibility Trade-Off

Industry Ecosystems Provide Benefits Over Conventional Co-Working Models

In recent years, landlords and third-party providers have employed various forms of flexible leasing or co-working to fill spaces and answer tenant demand. This can boost leasing by appealing to the many organizations that have come to embrace the flexibility of short-term occupancy commitments.

That flexibility poses an inherent challenge for many co-working providers and landlords because end users aren’t contractually tied to a space beyond a contract term that may be as brief as one month. Without a common purpose or sense of community, co-working tenants may not feel allegiance to one co-working provider or location over another. There is an ongoing risk those occupiers will be lured away by a competitor’s more attractive or lower-priced offerings.

In this economic growth cycle, providers have typically addressed user-retention risk with amenity packages designed to keep occupiers coming back for more. As the economy slows, however, some investors worry that organizations and individuals may let their co-working memberships expire if their financial situations change. To compound the issue, WeWork’s highly publicized financial woes have created additional concern for landlords and tenants alike.

What would ease those misgivings would be an additional, enduring incentive for occupier allegiance. Preferably, that inducement would provide a unique connection to the subject property and instill in its subtenants a sense of belonging, a sense of being at home in their shared workplace.

A purpose-built office ecosystem offers occupiers the benefits of shared space as well as key advantages over conventional co-working models. Like a business incubator, ecosystems foster innovation by bringing together like-minded people and organizations with common goals and missions. As relationships develop between the organizations, the convenience and efficiency of working in proximity increases the motivation to remain at the property long term. 

At Transwestern, we see brokerages like us as vital to creating a proper ecosystem. We have helped create ecosystems where we have seen collaboration increase and, in some cases, mergers between organizations within these vertical villages. Ecosystem tenants often find that shared services such as reception, event hosting and even fundraising are more compelling when aligned with a shared purpose. A service provider to a community of nonprofit agencies, for example, can include educational sessions on grant writing and volunteer coordination in its programming.

Locations populated exclusively by news organizations would have their own industry-specific preferences for shared infrastructure and programming. Journalists may appreciate a video editing lab and recording studios or private rooms to conduct interviews—amenities they are unlikely to find at a mainstream co-working facility but a potential draw for a news-oriented ecosystem. 

In our mind, office ecosystems mitigate risk for building owners and co-working operators. Occupiers are highly motivated to retain their seat at the collective table, more so in a downturn than ever. Since these spaces occupy such a small part of most office building’s total square footage, operators are not overexposed in a single industry like they would be if they adopted a campus-style focus with their suites. 

While the strategy works for an array of industries, it has proven especially appealing to nonprofit groups. Many nonprofits are burdened with administrative overhead, and when shedding traditional lease obligations, can devote more resources to the community and constituents they serve. One example of this is Civic Exchange at 233 N. Michigan Ave. in Chicago, a co-working space and learning community centered on how news, information and technology can further democracy and freedom. Opening its doors in March 2019, the 13,000-square-foot collaborative and “proving ground” houses seven civic and technology-centric organizations. We solved for the immediate lease expirations of each organization, from the initial concept meeting to opening the Civic Exchange doors, within five months. Ongoing initiatives will include growing the community with additional organizations and a larger space footprint, with the goal of cementing Chicago as the core of civic innovation, process and practice.

Another is the FBRK Impact House located at 200 W. Madison St. in Chicago. Led by former Chicago Bear-turned-entrepreneur Israel Idonije, FBRK has engaged our advisory and consultancy services to open the first FBRK Impact House. Slated for delivery in March 2020, the 45,000-square-foot, shared workspace is designed to influence, accelerate and advance the world of philanthropy by housing family foundations and grant makers together under one roof. Committed “anchor tenants” include Forefront, The Field Foundation of Illinois, Woods Fund Chicago and United States Artists. Even before opening its doors, FBRK Impact House has reached capacity on its dedicated office space.

Literacenter, another co-working hub in Chicago, is one example that makes us particularly proud. They bring together more than 130 like-minded literacy nonprofits into one shared home. The parent organization for Literacenter, the Chicago Literacy Alliance, was co-founded by Stacy Ratner, who spearheaded the shared workspace model. “One of the most precious commodities in nonprofit work is time,” said Ratner. “Having more than 130 of our closest colleague organizations in one place at the Literacenter saves us untold hours of arranging and traveling to meetings. We just pick a table in the communal space, sit down, and get right to work on our shared cause of literacy in Chicago.” Literacenter is comprised of 50,000 rentable square feet that blends a bookstore, offices, workstations and conference rooms. Transwestern handled everything from strategic planning to lease negotiation to coordination of donations for the space build-out. Since its launch, Literacenter has doubled its member organizations.

Our experience has taught us that a healthy office ecosystem exerts a tremendous magnetism upon organizations within a targeted industry vertical. In each case, success derives from finding a common thread that will connect like-minded people and organizations into innovative, purpose-built ecosystems. As co-working becomes a larger and larger part of every office portfolio, managers should consider the benefits of creating an ecosystem around their space in order to stand out amongst the growing competition. 

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