Co-working will survive in the Vancouver and Canadian markets despite troubles at the industry’s former darling WeWork, but to what degree remains unclear, according to a panel of Metro Vancouver office insiders.
During the past three years, co-working firms have leased 1.3 million square feet in the Vancouver region, said Mark Trepp executive vice-president, JLL. He was moderating a panel at the Vancouver Real Estate Strategy and Leasing Conference on Oct. 29.
That activity represents a 325 per cent increase to co-working’s overall footprint in the Vancouver region.
Co-working has accounted for 17 per cent of all downtown leasing activity so far in 2019. Tech tenants were by far the largest drivers of office leasing, accounting for 61 per cent.
Within the co-working sector, WeWork has been the major player in the region and is one of Metro Vancouver’s largest office tenants. The company has a total of 678,000 square feet, including 279,000 square feet of existing space and 399,000 square feet of planned space, CBRE said in a recent report.
Trepp spurred his panelists to a “hypothetical debate” over whether co-working is a fad that could be gone within five years. “Or, have they actually changed the way people think about their work and they’ll be here on a go-forward basis?” he asked.
“Co-working is nimble”
Cindy MacMillan, director of asset management for Anthem Properties, said her company has WeWork in its leasing portfolio. She took an optimistic view of co-working.
“I don’t think it’s a fad,” she said. “I think it will be here (and) it will be very strong in five years.”
The business model is nimble, she said, noting other co-working companies have been around for decades and weathered the dotcom crash and a recession. “It’s a proven method and I think it will continue to grow.”
MacMillan said co-working can thrive through both boom times and busts.
“(Economic downturns are) when you’re going to get people who are less willing to commit to longer-term leases: five- or 10-year leases, (and) higher rates,” she said. “They don’t have capital to do build-outs, so accessing co-working space is a good alternative for them.”
As for WeWork, MacMillan said she hopes the company survives its current operational, financial and managerial restructuring.
“I think they have to get their house in order right now,” she said. “There has been a lot of mix-up that is making it a little uncertain. I think they need a strong leader.
“They need to keep the vision, they need to slow down some growth and if they get that, I think they’ll continue to be a significant player.”
WeWork is at its “peak”
Framing WeWork’s issues as a “mix-up” is flattering, joked fellow panelist Ted Mildon, director, office leasing, Oxford Properties Group.
“WeWork is probably about as big as it will ever be, right now,” he said. “It’s probably at its peak.”
The main issue the co-working industry faces is pairing long-term liabilities with short-term space commitments. “We’ve seen existing operators have trouble doing that as business cycles have changed,” he said.
For co-working in general, the business model should be viewed as an ancillary, or complimentary, tenant for a building, rather than as an anchor, he suggested.
“It’s very difficult to control your culture when you’re in a co-working space, and as we know with recruitment and being able to attract talent, corporate culture is ever more important for these companies,” he said.
Ultimately, this period of flux at WeWork should give way to more balance in the co-working world, Mildon said, adding he expects Canada’s co-working market to “top out” at about four to five per cent of the Canadian office footprint.
Today, co-working accounts for about 1.6 per cent of Canada’s total office market.