Big business brings bling to co-working
Some of the world’s largest landlords, facing weak growth in office rents and occupancies, are investing in what until recently was viewed as a niche office business catering primarily to technology start-ups and millennials.
A venture of Brookfield Asset Management and Onex is negotiating to buy IWG, which has a market capitalisation of £2.48 billion ($4.34 billion) and operates co-working facilities as well as more traditional offices for small and midsized businesses.
Recently, Britain’s Takeover Panel extended the deadline for the venture to make an offer until February 2. Brookfield declined to comment on the negotiations.
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Meanwhile, Blackstone Group last year purchased the Office Group in a deal that valued the British-based co-working provider at £500 million. Blackstone, Brookfield and Houston-based Hines also are exploring deals with new shared-space firms like WeWork, IWG, Industrious and Convene.
The new workplace trend “is certainly something we’re spending a lot of time focusing on in our office space business,” says Rob Harper, head of US asset management at Blackstone’s real estate group.
Traditional office building investors are watching closely. So is the tech world, given WeWork’s stratospheric $US20 billion ($25 billion) valuation.
The interest among major landlords is being fuelled by the recognition that the co-working business has been one of the few bright spots in the office market during the economic recovery.
WeWork is taking the co-working market by storm.
Co-working firms are one of the few sources of growing demand, a point stressed at an October investor presentation by Boston Properties, one of the country’s largest office real-estate investment trusts. The firms accounted for 30 million square feet of absorption during the current cycle, or 9.1% of the total, says Owen Thomas, Boston Properties’ chief executive.
The firm has numerous leasing deals with WeWork. In one high-profile project, Boston Properties, WeWork and Rudin Development are developing a 14-storey building in the Brooklyn Navy Yard that will include a food hall, health centre, open lawn conference centre and access to a new ferry terminal.
But it also poses headaches for building owners. Up until recently, firms like WeWork attracted thousands of small firms and entrepreneurs to spaces in major office buildings that in the past didn’t serve such tenants.
Australia’s first WeWork co-working hub opened in Sydney.
The co-working approach to office space, especially its focus on flexible and short-term commitments, is beginning to spill over into the more traditional office space businesses, however. Big companies are pressing landlords for space with a hipper vibe, more amenities and that can be expanded and contracted easily.
This will likely increase landlord costs for building out spaces. “If you want to attract and retain tenants, you’ve got to be a little bit more bling,” says Jed Reagan, a Green Street analyst.
The Wall Street Journal
This article originally appeared on www.theaustralian.com.au/property.
