As ecommerce continues to take a bite out of bricks and mortar retail, some landlords are having to consider alternative uses for their properties and that may come in part from rising demand for coworking space.
A study by global real estate firm JLL analyzed 75 coworking spaces across the US with a combined space of more than 1 million square feet. It found that the highest concentration are located in malls (21.3%) or urban locations (20%).
"Setting up a coworking space in a retail property provides workers a fun, yet functional space with great accessibility, ample parking, and value-add amenities like personal services, shopping, and food options. On the flip-side these tenants bring in daily traffic and have a stable master lease that's typically five to 10 years,” according to Holly Rome, Director of Retail Leasing, JLL.
Growth ahead but still a fraction of overall coworking space
JLL believes that the growth of coworking space in retail will be strong; 25% each year through to 2023.
However, it will still only represent approximately 3.4 million square feet compared to the approximately 60 million square feet of coworking space located in traditional offices.
"We're forecasting a dramatic shift in office space in the next decade as tenant demand for more flexible space options forces building owners to adapt. We expect this to drive a convergence of office, retail, and hospitality uses into one seamless, integrated tenant experience," concluded Scott Homa, Director of U.S. Office Research for JLL.
Since 2010, the flexible space sector has grown at an average annual rate of 23%, compared to just one percent average annual occupancy growth of the broader US office market.
Four distinct coworking spaces
JLL has identified four distinct coworking spaces that it believes will see growth within retail locations:
- Retail Launchpads - The costliest coworking space at $404 on average per person per month, where nascent brands and innovative tech companies can gain access to target shoppers. What makes this model so unique is its ability to infuse the retail space with makers, innovators, and high-tech brands interacting with consumers and offering interactive experiences.
- Business Boosters - growth vehicles for entrepreneurs and freelancers, coming in at $255 on average per person, per month. The perks include offering special business development tools including capital, consulting services, creative support, specialty equipment, classes, and mentors. They are typically located in higher income areas and are a good choice to backfill vacant space in mid-level neighborhood centers.
- Creative Coalitions – offering community and workspaces for artists, makers, and creatives, drawing in millennials by combining community events and retail in their space. More than 75% of these spaces are in urban locations with walkable neighborhoods.
- Telework Hubs - the most common, comprehensive coworking location. A mix of office workers, entrepreneurs, and creatives, and represent nearly 80% of the spaces that JLL studied. This kind of coworking format will likely backfill vacant space in mid-level retail centers, taking on average 30,000+ square feet.