Why Big Corporations Are Moving Into Coworking Spaces
Around 10 years ago coworking spaces began opening up to offer affordable office space solutions to startups and freelancers, but recently much larger tech firms have been jumping in. Over the past year, larger companies are now looking for the benefits of locating in these shared office environments. As a result, big media conglomerates and newly crowned tech giants have been moving employees to coworking and incubator spaces. These spaces are set up so that Fortune 500 tech companies now have better access to innovators, innovations, talent, and reduced real estate costs.
Large corporations are partnering with coworking spaces to support innovation and idea exchanges. Tech giants such as Verizon, IBM and Microsoft are now testing coworking spaces to be near innovative startups. If you are an up-and-coming startup or small business looking to get noticed, there is no better place to make those connections happen.
One trend coming out of coworking spaces, like Galvanize, The Alley and Rise in NYC is integrating incubators into their business development strategies. By offering space and an environment with resources, they are able to cater and retain members who are launching startups. Corporations are forming partnerships with coworking spaces, thereby making it easier for them to stay on top of technological innovations and top talent. They want to keep an ear to the ground when it comes to potential disruptions in their industry, and they need to closely monitor potential acquisition targets. Renting space in coworking spaces can help them check all of the boxes: Attract top talent, monitor competition, and find acquisition targets. Here are a few examples of partnerships in the past couple of years.
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In 2016, Barclays, the multinational bank, launched a fintech-focused accelerator space in New York called Rise that partnered with TechStars, which offers three floors of membership coworking space, a 100-seat auditorium and meeting rooms with video and podcast recording facilities.
IBM partnered with coworking operator Galvanize at their recently launched New York office space in West Soho. Furthermore, in March 2017, IBM announced a new curriculum that furthers innovation by tapping into Galvanize’s immersive learning environment called IBM Cognitive Course, which brings AI cognitive skills and data science curriculum to the next generation of machine learning scientists and developers. Then on April 19th, 2017, IBM announced a landmark deal to take an entire WeWork building to house at least 600 employees.
Microsoft also made headlines at the end of 2016 with their decision to give 30 percent of their employees (their sales departments) in New York City access to WeWork locations. Microsoft cited their desire to tap into the startup culture in a more flexible coworking office arrangement. There is a trend happening here. Wework just announced a major acquisition of a New York coding bootcamp called Flatiron School for themselves, which is aimed at helping to facilitate junior developers getting hired by Wework’s corporate members.
Coworking spaces have been moving away from catering only to the startup and small business sector. Thus, companies like Microsoft or IBM have been renting WeWork spaces for their employees and testing more involved partnerships. WeWork now manages the entire building for IBM in Greenwich Village, and it runs Airbnb’s Berlin office as well as Amazon’s Boston office.
These new trends have been fueling Wework’s new aggressive focus toward partnering with enterprise tenants. A spokesperson from WeWork cites a 90 percent growth rate in the number of enterprise corporation clients between June 2016 and June 2017, with a 360 percent increase of remote worker members from enterprise companies. According to Entrepreneur, WeWork is now valued at $20 billion.
In June 2017, Alley announced a new and unprecedented partnership with Verizon, the world’s leading telecommunications company, which has allowed for Alley to open new locations in New York, Cambridge and Washington, D.C. The deal, dubbed “Alley powered by Verizon”, is more than a just a revenue sharing real estate deal, Verizon executives hope to benefit from a different kind of networking.
“To us, the real value is what we get by bringing entrepreneurs into the building and having them meet our folks,” said John Vazquez, senior vice president and head of global real estate at Verizon. “We realize that things will be invented outside of Verizon and we want to be a part of that.”
With this partnership, Alley is attracting a growing number of corporations in addition to earlier stage startups. “A few years ago, many multinational corporations would not consider renting part of a coworking space, but what a difference a couple of years make,” Saltzman said. “As I see it on the ground, coworking is the fastest growing asset class and it is here to stay.”
Many companies “put a premium on the flexibility and pay-as-you-grow nature of coworking,” he added.
Saltzman attributed three growth drivers behind the coworking sector’s fast expansion: continued growth of start-up culture, a more flexible globalized workforce being fueled by technology, and the millennial generation. That cohort, Saltzman said, is embracing and demanding facets of the sharing and experience economy.
The growth is likely to continue to change the landscape of office real estate.
“There will be different offerings and brands to suit the various segments in the markets,” he said. “Similarly, commercial building owners will become more educated and conscientious about which coworking brand to align their building with.”
Corporate use of flexible offices is massive and growing.
A recent Q3 Occupier Survey by the commercial brokerage firm CBRE indicates that 44 percent of corporations are already using some type of flexible open platform office solution. Data from the survey, which tracks and covers leaders of corporate real estate departments for major corporations, found that they expect their usage and demand for flexible office space will continue to increase over the next few years.
Sixty-five percent of the companies expect to use coworking as part of their office portfolio in the Americas by 2020. JLL, a major brokerage firm, predicts that by 2030 up to 30 percent of all office space will be, in some form, flexible or have an open layout design. The report cited a wide variety of factors for switching to the coworking office space approach, from financial incentives to a need to spur collaboration and innovation.
Over the last several years there has been a steady stream of announcements for new corporate headquarters. In order to improve productivity among millennial employees, Pricewaterhouse Cooper (PwC) recently converted all of their US offices into open layout coworking spaces with no assigned desks. Apple, Google, Facebook, Linkedin, GE, SalesForce, American Airlines and Workday all completed or unveiled plans for new offices.
While the announcement of a new Amazon headquarters garners much of the attention, the growth of these companies and their appetite for space is also happening far from their home offices. The motivations for creating a widespread workforce range from a desire to be close to key partners, as well as the need to tap into additional talent pools. Fueling company growth in different market locations makes using flexible office space as a useful expansion tool.
Even big companies trying to enter into new markets usually start with relatively small and agile teams. In these scenarios, shared workspaces make sense in order to keep costs under control and the logistics easier. Even as the office scales, a rapid team expansion favors adding space on-demand. Uncertainty around team growth rates can sometimes push companies, such as American Express, Merck and Business Insider, to look for semi-permanent spaces. This would allow them to give their employees the same feel of a fully-stocked, traditional office environment, but without the traditional five to 10-year commercial office leasing commitments.
According to Zoltan Szalas, who is the head partnerships at the coworking app Croissant, “Corporations are recognizing coworking as a viable option for their employees. There are a lot of benefits for a corporation to divest real estate and use a complete end-to-end turnkey solution like WeWork or Knotel.”
Croissant has been seeing demand and building a new product that caters to a different type of corporate worker. They have been targeting the remote and traveling employee segments. Consulting firms like McKinsey & Company have thousands of consultants who travel three or four days a week to client offices. They are essentially building an end to end solution for the remote and traveling employees.
“Croissant helps these traveling consultants on the days when they are not working onsite to replace the lackluster coffee shop experience with flexible curated workspaces, where they hop into private meetings with clients and book a conference room through the app,” Szalas said.
The demand for shared office coworking spaces is surging in the US and around the world, with several mega corporates over this past year deciding to jump into the game.
A number of factors drive the demand for co-working. Telecommuting work keeps growing, and independent workers — contractors, developers, freelancers and the like — make up a bigger part of the of the growing labor force. Corporations are able to see opportunities in the growing coworking space trend. They are able to tap into the local innovation and recruit top talent by partnering with coworking spaces and forming partnerships to provide startups with resources; while at the same time keeping their eyes open to new and potentially disruptive technologies that could either be competitive or useful as an acquisition target.