As we enter our new collective future, there’s no doubt that commercial real estate has been forever changed. Cities that were once seen as desirable centers of commerce and culture have been quieted by the lack of international tourism and the ability to work remotely. Culture magnets such as Broadway have been shut down and will not re-open until at least Fall 2021. Office space has been vacated at unprecedented levels with many companies removing any attendance requirements in favor of remote working policies. The reality is that many workers are actually more productive without daily commutes and the stresses of leaving home. But data suggests that workers may not ultimately want to physically be ‘at home’ even if they don’t necessarily want to go into the office. So where do they go?
Until now, co-working has been almost entirely focused on urban locations where the density of small businesses lends itself to bustling locations with beer taps and game rooms. However if you think about the Hospitality market the most profitable hotels are not the large urban ones but the smaller suburban ones with lower overhead and consistently high occupancy rates. For 2019, the average occupancy rate at Courtyard by Marriott was 2 points higher than the average Marriott with only a small difference in average revenue per room. However because Courtyard hotels are in less expensive suburban locations and require fewer staff than full service hotels, the average income per property is much higher. Now let’s apply this thinking to co-working.
Imagine a small town of 5,000 residents that has 2,000 homes where half of those homes have a person working from home. In this town there are 8 nail salons, 4 gyms, 20 restaurants and NO co-working spaces. Now let’s imagine we take 2 vacant office spaces in that town and put 20 socially distanced offices in that space with your typical conference areas, reception, pantry and print areas. If the cost of operating this space was $3,000 per month but you collected $300 per month from each of the 20 occupants, you would in theory be collecting $6000 per month and earning a pretty solid return on your investment. Of course this example is simplified but why couldn’t co-working be successful in the suburbs? Many people would love a commute of a mile or two while still having the amenities of a traditional work environment. If this were approach were adopted in small towns across America it would not only reduce the collective blow to commercial real estate but might also save our small Main Streets that are currently struggling in the age of Amazon.
It will remain to be seen whether or not people will return to their old offices once it is deemed ‘safe’ but if there is another option that gives the employer and employee the best of both worlds, why not pursue it? And better yet, why not put them right next to every Starbucks and Chipotle? Just a thought.