Why the Pandemic Has Changed the Office vs. Coworking Debate

After more than two years of working from home, you might have decided that your employees’ couches aren’t going to cut it as their workspaces anymore. Maybe your small business is growing, or you and your colleagues need some time away from distractions at home. It’s time to look for an office space, but what are your options? Do you sign a traditional office lease, or go the coworking route?

Coworking spaces have long been established as a practical alternative for entrepreneurs, remote workers and freelancers seeking a more settled workspace than the free table at a local coffee shop.

But now, many larger companies are moving toward coworking too as employees seek more flexibility, and employers look to reduce their exposure to long-term leases.

It’s becoming increasingly clear that you don’t have to be a “coworking company” to be a coworking landlord. Even before the pandemic, many traditional real estate companies began offering up some of their vacant office space as coworking space. IWG, formerly Regus, debuted in 1989 in Europe. Tishman Speyer launched ZO. in 2017 at New York’s Rockefeller Center. CBRE last fall invested $200 million in coworking company Industrious, and New York landlord Silverstein Properties launched its coworking concept, Inspire, last September as well.

Here are some questions tenants should ask before signing a traditional lease, if they are also considering a coworking arrangement.

For companies with just a handful of employees, coworking could be a better investment. But there are some key questions to consider:

• Do the values of the coworking environment or provider match those of you and your company?
• Now consider your neighbors’ values. Do these values fit with your business culture?
• How conservative are your clients, and how often will they visit?
• What will your company look like in a few years? If you don’t know the answer, a flexible coworking environment may be the right choice. However, if you have a clear vision and growth plan for the foreseeable future, an office lease may be the answer.

Flexibility is key here. Coworking tenants can decide month-to-month what type of workspace best suits their needs. Going this route also helps prevent upfront fees, deposits and the long-term contractual obligations of a lease.

Want to move in now? Need a place that’s pet-friendly, or has a gym? Different coworking options offer a wide range of different amenities. When you don't have to worry about furniture or supplies, work can be the sole focus.

Other costs like office equipment maintenance, utility bills or a cleaning service, are usually covered by the coworking company, or the office landlord offering coworking arrangements.

Coworking spaces also often host lunch workshops and other networking events designed to connect potential clients and investors.

Privacy is a concern: Sensitive conversations will involve trying to seek out a quiet corner.

It's also more difficult to brand. Even private coworking offices typically can't be decked out with your company’s logo or signage. Costs can easily add up as a company expands, too. Once you hire more than a few employees, traditional office leasing may be the better deal.

“The progression I usually see with small tenants, they start in a coworking space, the cost for coworking is maybe $1,000 per desk per month,” said Ruth Colp-Haber, CRE, founder of New York-based Wharton Property Advisors, which has negotiated hundreds of office leases for tenants. “Once they get to about five to 10 people, they start to look at the sublease market. Which is kind of the natural segue from coworking.”

Signing a lease is a serious commitment for a fledgling business. Besides tying you to a place for years to come, there’s often upfront investment in furnishings, office equipment and renovations to consider.

But you get your logo on the door, and custom decor that echoes your brand. You don't require permission to throw a party, host visitors for an event, or adjust the thermostat.

Now is a good time for tenants to be searching for traditional office space too. A record amount of office space is set to expire this year, and sublease availability across the U.S. rose 3.6% in the first quarter to 159 million square feet, well above pre-pandemic levels, according to CBRE Group.

Colp-Haber said she recently negotiated an office sublease for $40 per square foot at One Penn Plaza, a 57-story office tower next to Madison Square Garden. Rent in the building normally costs $100 per foot, she said.

“These are companies that put their space on the market. They're not concerned about the mortgage with the bank. They're not concerned about keeping up appearances with the other landlords, and how they look in the market. They just want to dump their space,” Colp-Haber said. “[And other] companies take sublets because the bargains are there.”

The glut of vacant office space also presents an opportunity to move into space that’s already finished, cutting out construction costs. Free rent concessions are on the rise as more landlords scramble to fill space.

When asking whether to sign a direct office lease or go the coworking route, the answer may seem simple: It depends on the size of your company.

But other factors such as flexibility, your tolerance for risk and building out an office starting out, and whether you feel like sharing office space with neighboring startups must be considered.

At the same time, the glut of vacant office space presents opportunities to growing companies that didn’t exist just a few years ago.