Chamber News

August 28, 2019 Likes Comments

Why the suburbs have been so slow to adopt coworking

Newton Innovation Center - coworking

By Chuck Tanowitz

It is the fastest-growing trend in commercial real estate and is entirely remaking how employers and workers lease and use office space.

Coworking is especially hot in Greater Boston, where nearly 5 million square feet of office space has been converted to flex or coworking space, including 1.5 million sq. ft. that is operatedby industry giant WeWork across 16 locations, while the rest are spread among local stalwarts like the CIC, Workbar, and others.

After a long drought, we are finally starting to see some co-working options emerging locally too.

Workbar has opened in Burlington. The CIC has partnered with Newton-Needham Regional Chamber and City of Newton to operate the Newton Innovation Center in Newton Corner. The independent Burbspace opened earlier this year near Needham Center. And Staples has just announced plans to rent desks as part of a major repositioning in Needham.

But aside from Workbar, none of these locations offer the high-end, amenity-rich spaces that exist downtown and in cities across the nation and around the world.

So why it is taking so long for coworking to catch on in our inner suburbs?

The good news is that nearly all the major coworking companies are scouting for space in our region. It’ll just be a matter of time before the dam breaks. But as a few major challenges have held things back:

Density – Coworking is a very particular kind of use that operates best when you put many people into a small physical space. A company or an individual signs up for a membership that typically includes access to desks, snacks, coffee, internet access and a few other services, as well as access to conference rooms and, most importantly, a community. Instead of taking a multi-year lease and owning office furniture, you and your team show up with laptops, take a seat and start working. If you add an employee, you just add another membership. As you grow, coworking can grow with you. You can rent a whole office, a whole floor or even a whole building.

While many suburban offices are built to handle one person for every 120 square feet, and assume that employees will show up every day, most coworking operators aim for a density of at least twice that. This comes with added complications, not limited to the wear and tear on the building, use of bathrooms, emergency exits and other such decisions. But perhaps the biggest complexity has to do with transportation and parking.

Downtown coworking spaces rely on the transportation infrastructure for success: Public transit, bikeability and walkability keep people coming in. But in the car-centric world of the 128 belt, the office population is measured by parking availability. If a property doesn’t offer enough parking, it’s difficult to sell enough memberships to establish a profitable coworking business.

Also, coworking thrives near amenities, which is why many coworking operators sell themselves to property owners as drivers of foot traffic that can help support nearby retail. In contrast, massive parking lots are antithetical to street-front retail. In Newton, Needham and other communities there’s not much commercial office space available close to retail centers, while office parks lack retail altogether.

Right space, right owner, right business model – Over the past two years I’ve spoken with several coworking providers who tell me that they are looking for a minimum of 25,000 square feet of space with the option to expand to as large as 60,000. But it’s not just the right size, it also needs to be in a preferable location and be with an owner who is willing and able to make the right kind of deal.

Some coworking companies prefer revenue share agreements instead of a traditional lease. They offer to pay the landlord a percentage of every dollar earned. If all goes according to plan, a landlord could reap a return over a traditional lease. But if something goes wrong, the landlord is also taking on some of the risk too and not all owners - or their lenders - are interested in that.

Business Opportunity – Suburban markets are tiny compared to the opportunities downtown. WeWork’s 1.5 million square feet in Boston exceeds all of Newton’s largest office park, Wells Ave. What’s more, offices and housing are being built in Boston at a rate that dwarfs what’s happening here. While Newton and Needham may celebrate the arrival of a 200,000 to 300,000 square feet new office building, a newly built property in Boston will be three or four times that size and rent for two to three times as much.

And there’s more revenue potential downtown. While you would think that low rent districts would be more desirable for entrepreneurs and start-ups, locating in a buzzy high-rent location adds cache and opportunities to make fruitful connections. High rent districts allow coworking operators to charge more, often at twice to three times the rent while many of the operating costs (personnel, internet service, furniture, snacks, cleaning, etc.) remain consistent whether they’re in Boston or Needham.

That’s why the Back Bay alone -- just a 30-minute T-ride from Newton Highlands -- is filled with a variety of coworking spaces. In addition to Workbar and two WeWorks there’s The Wing (targeted at women), Spaces (by office-share giant Regus) and Industrious (aimed at higher-end clientele) with each operation offering its own flavor, design and services.

All that said, there’s no doubt that more coworking is headed our way. Boston Properties is planning to open a flex space in Waltham and, while not traditional coworking, it is a more flexible, service-oriented offering than the suburbs have had in the past. Workbar and other players have indicated interest in this market too.

So if you’re looking for a desk close to home, you can set up shop at the NIC or Burbspace, or just sit tight and wait it out.


What’s next for the Newton Innovation Center

Nestled on Fallow Park in Newton Corner, the Newton Innovation Center is a makeshift situation, with about 6000 sq. ft. of coworking in a former library that lacks any expansion potential. Many people working at the 28 companies there say it’s a vibrant place to work with a great community, but with space and other physical limitations it’s not a long-term solution to the area’s coworking desert.

That’s why the Newton-Needham Regional Chamber commissioned a study, funded in large part by a MassDevelopment Creative Workspaces Grant. Our question: what now?

The chamber contracted with Dougan Sherwood a former CIC employee to explore next steps for the NIC. It was Sherwood led the CIC’s expansion in St. Louis, and he’s the current President of the Haverhill Chamber of Commerce so he knows both the coworking business and chambers well.

Sherwood’s analysis revealed that yes, “Newton is well suited for professional coworking due in large part to its proximity to Boston and high net worth, highly educated residents” but he felt that an ideal location for the NIC wouldn’t be a quiet street in Newton Corner with few amenities.

Instead, coworking “would work in most areas of Newton where concentrations of business (commercial and/or retail) exist.” That is, coworking would be great in a commercial building near a village center. He also noted that rising commercial real estate prices will make Newton a more attractive coworking target in general.

Among the other recommendations:

  • Improve the existing location with better HVAC, bathrooms, kitchen and internet access. He also suggested upgrades in furniture, bike racks and lighting.
  • Find a way to increase the parking or at least give workers a way to easily park all day nearby. While many take the bus, the small adjacent lot isn’t enough to satisfy demand.
  • Update the business model to allow for additional services and even a full-time person to handle things like business programming that can attract a stronger innovation-driven tenant base.
  • Find a 25,000 sq. ft. space to call home within the next three years.

For next steps the chamber is working closely with the city, who owns the Vernon Street property, to determine what work can get done and how we can fund it. “The NIC currently serves a valid purpose in Newton of keeping entrepreneurs in the city by providing them the flexible space they need to work and grow,” Sherwood wrote in his report.

Now we just need to provide them with the right facilities to truly succeed.


 

 

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