What is this coworking thing all about?

The new language of office space.

Thousands of years ago, the medieval farming economy revolved around the landlord-serf, aka landlord-tenant relationship. The rather one-sided dynamic took a giant leap forward in 1677, when Sir Thomas Grosvenor became the modern era’s first real estate developer. The Grosvenor Group is still one of the world’s oldest and largest real estate owners and landlord. Little in our field has changed in 350 years:  Asset owner or landlord (truly, the lord of the land) rents to tenant. Tenant produces a good or service and pays the landlord a portion of that income for a specified period of time to use all or a portion of the asset.

Fortunately, technology, industries, work habits and work styles are evolving, crowning the customer king and turning the relationship on its head.  As we transform how we conduct business, attract talent and customize space to new human behavior, we are also changing how we talk about it. Here’s a simple guide to the new vernacular.

Coworking is an often used and misused term referring to the shift, and more modern way, office space is being used and acquired by businesses of all types and sizes.  Coworking (not co-working, drop the hyphen) space is characterized by its open, collaborative nature and typically holds very few, if any, private offices. Instead, it boasts an open plan with communal areas, large, small and micro meeting rooms, phone booths and shared amenities like a kitchen, printers, bathrooms, bike and car parking, an outdoor terrace, sometimes even a gym and locker room.

Coworking, however, is just one product type in the flexible workspace category that’s revolutionizing how office space is delivered to and consumed by users.  While traditional shared office products will endure, the traditional legacy industry is moving to a consumer-facing business. How users (customers!) buy office space, and from whom, is defining the change – it’s more than a new esthetic.

Increasingly, customers are adopting the flexible workspace model, and few property owners fully understand how to deliver on user demand. Flexible workspace (let’s just call it workspace, and drop the flexible), is now delivered by an operator, not necessarily the real estate asset owner. The buildings have become wonderfully complex, outfitted with competitive amenities to offer the best commodity for the price.  The creaky landlord-tenant dynamic, like a maze of beige cubicles, needs to pivot to one that is future-facing, nimble – yet somewhat unknown and frightening.

SIDEBAR: WeWork’s dominance as a coworking business contributed to the generic use of the term. The brand became the moniker for the flexible workspace trend – much like Uber and AirBnB have in the “sharing” business model. Today, WeWork owns a 3% to 4% market share of the flexible workspace sector and a $42 billion dollar valuation, subject to the coming IPO.  If the $40-45B valuation holds, the flexible workspace industry becomes a $1.4 trillion industry.  That is a big number, but not out of the question.

Start by getting your arms around the language. The following glossary better defines today’s landscape of players and products. Not all of the old terms will go away. But the new way of talking and thinking is vital when discussing today’s workspace.

A Guide to New Workspace Vocabulary

Then: Office Space

Now: Workspace/Coworking/Colocating/Dedicated desk or office

Then: Landlord, Building Owner

Now: Asset Owner

Then: Tenant, Lessee, Occupier

Now: Member, User, Guest, Customer

Then: Lease

Now: Member Agreement, License Agreement, Service Agreement

Then: Landlord, Owner, Lessor

Now: Operator, Service Provider, or Asset Owner

Then: Office Suite/Demised Space

Now: Workspace/Dedicated Office/Dedicated Desk/ Shared desk or open seat

Then: Tenant Improvements

Now: Customization. Tenant improvements aka build-out allowances are a blessed thing of the past. Workspace is delivered furnished, technology enabled. Customization will be more common on longer term agreements

Then: Pass-through expenses - operating expenses and real estate taxes

Now: GONE! Longer-term agreements will have fixed annual escalations, no more murky complex Op/Ex statements, and variable expenses

Then: Product types

Now:

Open desk - Up for grabs, first-come, first served; typically includes common area usage, lounge space, cafeteria, and access to meeting space at additional cost

Flex desk - Same as above, open desk with limited monthly usage

Unlimited Open Desk - Same as above, but single exclusive use of a particular desk by one paying member 24/7/365

Dedicated Office - Same as above, but private office with one or more workspaces inside private room(s)

Term Dedicated Office - A dedicated customized office suite with access to use of the common space, lounge, meeting rooms and cafeteria

The fundamental underlying change is that asset owners are mutating into either owners and operators, or just owners. The biggest questions building owners need resolve for themselves is whether they are going to be a service provider and maintain one-on-one relationships with occupiers  -- or, instead, act as a passive asset owner, turning over the occupier relationship to a dedicated service provider.  Think hotel owner versus hotel operator.  As an owner, do you want to provide a service and maintain hundreds of customer relationships or just one?  If it is the latter, engaging in a traditional long-term lease in place to an operator is a solution.  More likely, as the industry evolves, owners will engage in service agreements with a suitable operator for all or a portion of a building or portfolio.

For occupiers, the challenge is sorting through the multitude of options and spaces being offered.  Currently, a handful of good marketplaces exist, but there is no single online workspace marketplace. Brokers will be of little use or help. They perceive (incorrectly, by the way) that “shared office” deals are not worth the effort, and result in little or no commission.  The truth is, however, that brokers bring little value to the new equation. Consumers will by and large educate themselves via the Internet, word of mouth, and facility tours.