Inside the Co-working Evolution
When co-founders Don Ball and Kyle Coolbroth first opened the doors of CoCo in the Lowertown area of downtown St. Paul in 2010, most people weren’t yet familiar with the term “co-working.” The concept was to create an open, collaborative, shared office space where freelancers, startup entrepreneurs and others would buy memberships to flexibly use the office space. But it also would be an environment where people were surrounded by creative peers. It would be a place that made it fun to come to work.
“We joked that co-working was social media in real life,” recalls Ball.
Customers would buy memberships in the co-working club, with a sliding fee scale based on how often they wanted access to the workspace; while some would want to be there every day, others might only need the space one or two days a week or just a few times in a month. Ball says one of the key elements for an effective co-working space is creating an environment that encourages co-workers to bump into each other, start conversations and trade notes and ideas.
“Part of it is this idea of ‘the commons,’ where people collide,” Ball says. “You design the space so people almost have to go through the communal area to get to wherever they hang out.”
CoCo’s operators also help build and reinforce a sense of community with regular networking sessions and programs for members. At its monthly “Coffee & Closers” program, for example, a local sales pro speaks about techniques to help fledgling companies grow revenue.
The CoCo model has taken root. Since opening in St. Paul, CoCo has added locations in downtown, Uptown and northeast Minneapolis. It’s expanded to Chicago and in 2017 increased space in the downtown Minneapolis spot.
It’s likely no coincidence that co-working emerged from the recession, when many people were out of work and turned to freelancing or hatched ideas to start their own companies. But today co-working isn’t just for solo operators: a growing company might have a dozen people or more plugged into a shared space.
Co-working doesn’t work everywhere. CoCo closed a short-lived space in Fargo, N.D., in 2015, which had only been open for about 10 months. Ultimately, there wasn’t enough business. “It was too small of a town,” Ball says.
CoCo’s current membership pricing ranges from access five days a month for $99 to private suites, which start at $1,060 per month.
Today co-working is no longer on the margins of commercial real estate: It has become big business.
The clearest example of that is the fast-growing New York-based WeWork, which some have billed as the “Uber of office space.” The startup has a dizzying valuation that now tops $20 billion. In a transaction that underscores the new scale of co-working, WeWork struck a deal last spring to lease an entire Greenwich Village building to a single company—IBM—which planned to house 600 employees there.
WeWork has landed in Minneapolis in a big way. The company opened its Minneapolis outpost in October, with 53,000 square feet of space on three floors of Capella Tower in the heart of downtown Minneapolis.
Another national operator, New York-based Industrious, was already in Minneapolis and is expanding its presence here. Industrious opened a 20,000-square-foot space on the 28th floor of RBC Plaza in downtown Minneapolis in November 2015. The company opened its second, larger location on December 1 with a 34,000-square-foot space in the new T3 office building in Minneapolis’ North Loop neighborhood.
“We are extremely pleased with our first Minneapolis locations, and demand seemed way too high to ignore without adding a second location in the market. One of the main drivers behind our search for a second location was our members’ ability to rapidly grow their footprint with us. Our members’ businesses truly speak to the Twin Cities’ economic growth over the last couple of years. We’re excited to be a part of it,” says Hannah Maertz, community manager in the RBC Plaza location.
“The North Loop was a no-brainer spot for us to expand to in the Twin Cities,” Maertz adds. “Not only is it one of the fastest-growing neighborhoods, it also offers amazing restaurants and entertainment options, which really marries with the Industrious brand well.”
Research from the local office of Chicago-based Cushman & Wakefield underscores the growing presence of co-working space locally. Cushman & Wakefield recently tallied 20 different companies offering about 635,000 square feet of shared office space; that translates into a single fairly large office building, roughly the size of the taller of the two buildings at Fifth Street Towers in downtown Minneapolis.
The Cushman & Wakefield study found that national players WeWork and Industrious have about 17 percent of the local co-working space. But with about 80,000 square feet of space, locally based CoCo is the largest single provider of the new breed of co-working space in the Twin Cities.
The Cushman & Wakefield count also includes companies offering traditional executive suite space. By that measure, Dallas-based Regus has nearly one-third of local shared office space in the Minneapolis-St. Paul market.
“‘Co-working’ is definitely a new buzzword, but collaborative workspace we’ve been doing for years. It used to be called ‘team space,’ ” says Wes Lenci, Regus’ executive vice president for the western United States. “We’ve been doing it all along, in a different way, shape or form, if you will.”
Lenci says that Regus has 13 locations across the Twin Cities. While the company has historically been associated with private office and suite space, it also offers co-working options. Lenci says that the co-working boom is not hurting business.
“It’s good for our business—more people in the market looking for shared space,” says Lenci. “There are more and more customers in the market.”
Another large co-working player is headed for Minneapolis. Amsterdam-based Spaces is slated to open a 40,0000-square-foot space in the North Loop area of downtown Minneapolis in the spring. Spaces is actually a sister brand to Regus, which acquired the co-working company in 2015. Regus and Spaces are marketed as distinct brands of IWG plc, a holding company based in Switzerland.
Beyond a blip
While co-working once seemed like a blip on the radar, the accelerating trend is starting to be felt in many corners of the commercial real estate industry. Many owners of traditional multi-tenant office buildings are now adding spaces to their properties that look and feel like collaborative co-working areas. It’s a bonus for tenants.
“It’s an amenities arms race. Landlords understand that. They’re trying to create the same value that they see these co-working operations providing. I think it’s upped everybody’s game,” says Dan Peterson, a senior associate with the local office of Toronto-based Colliers International. “More and more the flexibility of the co-working [space] is something that even [established] companies want.”
Amid increasing competition, commercial real estate brokers in the Twin Cities expect more national co-working companies to set up shop in the Twin Cities.
“I think we’ll see more and more brands show up,” says Jim Montez, a veteran office space broker and senior director with the local office of Cushman & Wakefield. “I think it’s a product type that everybody is trying to understand. Some landlords are more comfortable with it than others.”
Co-working space could lure some smaller companies who might otherwise be candidates for traditional office space, notes Montez. The potential flip side: If those companies continue to grow, he says, they might seek their own space.
It isn’t just small companies that see the appeal of co-working space. Brokers say that larger companies also see advantages to co-working space. They can access space for short-term needs or to test out new locations before making a long-term lease or sublease commitment.
“Corporate America is a huge user and will continue to be a user of co-working space,” says Montez. “It’s a plug-and-play-ready environment,” he explains. “They can go to WeWork and say, ‘I need three desks and a meeting room.’ ”
While co-working does mean some competition for office space, co-working companies are starting to sign notable leases, which is a plus for the market. The local office of Colliers International found that tenants have been shedding space in the multi-tenant office market, which saw a 580,000-square-foot decline in occupied space in the Twin Cities metro area for the first three quarters of 2017.
“For office building owners, it’s one of the few industries that truly represents new growth for the office market,” says Brandon Megal, a senior vice president with the local office of Los Angeles-based CBRE Group Inc.
Given the recognition of CoCo, Ball says that he often hears from big real estate companies, including real estate investment trusts, that want to pick his brain about the co-working business.
“We tend to talk to some of the bigger landlords who are thinking of a whole array of property across a region—a lot of the big REITS are really looking at this,” Ball says. “I think we’re in a growth industry, and there’s going to be room for a lot of people doing what we’re doing.”
Burl Gilyard is TCB’s senior writer.