Shared Workspace Providers Growing Their Profiles in Southern California
WeWork Leases More Than 50,000 SF in San Diego
By Lou Hirsh
Several operators of co-working office spaces, featuring non-assigned work desks and collaborative areas available to members on a monthly basis, continue to grow their respective footprints across the Southern California region in a trend led by industry forerunner WeWork, which last month leased 52,371 square feet at The Aventine in San Diego, CA.
Located at 8910 University Center Ln. in San Diego County, the 11-story, 219,987-square-foot, 4-Star office building was constructed in 1990 on 4.2 acres in the University Town Center submarket, adjacent to La Jolla.
WeWork will take occupancy of floors four, seven, and nine through 11 when the deal commences, expected to occur by year-end. Financial terms of the lease were not disclosed. The building is 93 percent leased to multiple tenants, including JLL, Ameriprise Financial, eMoney Advisors, Raymond Jones Financial, Vision Institute and CoStar Group, Inc.
Bess Wakeman and Tony Russell with JLL represented the landlord, Boston-based Rockpoint Group LLC, in lease negotiations with the tenant.
A WeWork spokesman confirmed that the company is taking space at the UTC building for about 1,000 desks, about half of which will open in March 2018, with the rest in August. He noted the company is very bullish about San Diego, and excited about where the market is going.
In September 2016, WeWork leased approximately 88,000 square feet in downtown San Diego, taking space across five floors of the office tower at 600 B. Street.
A Local Trend
Several of WeWork's competitors have also targeted San Diego County for expansion since 2016, including Chicago-based Level Office, which in September of that year purchased an entire six-story, 79,670-square-foot building at 1111 Sixth Ave. in downtown San Diego for $7.38 million, or approximately $154 per square foot, according to CoStar data.
See CoStar COMPS #3721028.
Others expanding locally have included Avanti Workspace, part of San Francisco-based LiquidSpace, which opened its own 22,000-square-foot co-working space at 5878 Owens Ave. in Carlsbad. Arizona-based DeskHub, which expanded an existing space in downtown San Diego's Little Italy by nearly 50 percent to 23,000 square feet, and San Diego-based Co-Merge, which joined forces with local competitor Co-mmunity to expand operations in the city’s Hillcrest neighborhood, are other instances of co-working space providers being drawn to the area.
In a recent report, JLL Senior Research Analyst Patrick Ashton said downtown leads San Diego County with 15 companies totaling approximately 261,000 square feet of co-work space. Flexible-space providers including WeWork, Regus, Barrister Suites and Premier Business Centers have recently been increasing their presence in San Diego and other major U.S. urban markets, according to the report.
Local brokers and other sources have also noticed the trend in the San Diego region, which now houses more than 20 co-working spaces overall. Ashton said the spaces are seen as particularly attractive to the 18-to-34 millennials, who are drawn to high-density, "live, work, play" submarkets like San Diego's downtown, with numerous activities and lifestyle elements within easy walking or biking distance. Millennials already represent 40 percent of downtown San Diego's residents.
Local brokers note that the trend toward communal workplace amenities has been migrating in recent months to UTC, which is often referred to as San Diego’s second downtown.
Ron Miller, a senior vice president with Colliers International's San Diego occupier services team, pointed to U.K.-based Regus, an operator of traditional short-term office suites, which recently opened a branded co-work facility called Spaces, spanning 17,000 square feet in a UTC building owned by Irvine Co.
Also in UTC, EvoNexus, an incubator and co-work space for early-stage technology companies, significantly expanded its local operations at another Irvine Co. building.
Miller said co-work spaces have been a big catalyst in dropping vacancies and raising rents at several downtown office high-rises, including the 600 B St. building where WeWork set up shop. The 24-story, 359,278-square-foot, 4-Star tower was purchased in August 2017 by New York-based Rockwood Capital LLC for $109.5 million, or $305 per square foot, according to CoStar data.
See CoStar COMPS #3992234.
The co-work trend has recently been expanding in San Diego to include spaces geared towards specific industries or entrepreneurial segments. Miller said those include Enrich, a downtown co-work space for lawyers; BioLabs, a life-science-focused space in a UTC office building owned by Alexandria Real Estate Equities and Hera Hub, a space geared to women business operators with locations in Sorrento Valley, Mission Valley and Carlsbad, CA.
"It will be interesting to see what kinds of industry-focused co-work spaces will be opening up," Miller said. "The law-focused space is very clever."
Miller said Colliers has recently represented several clients - too early to name - who are scoping downtown and UTC for potentially more co-work set-ups. While downtown has recently been showing signs of potential saturation by the co-work space providers, there appears to be room for more in submarkets such as UTC, Sorrento Mesa, Carmel Valley and Carlsbad.
Miller added that the co-work model works best in markets with large numbers of apartments filled with younger workers, and where several companies within an industry are clustered. UTC in particular is a good candidate thanks to a plethora of existing apartments with more on the way, its proximity to University of California San Diego and the ongoing expansion of San Diego's mass-transit trolley system to include several new stops at UTC and UC San Diego.
A Global Phenomenon
WeWork is the U.S. leader within the expanding co-working industry in terms of its square footage and location count, with a presence totaling more than 7 million square feet in more than 100 buildings worldwide. The company was started in 2010 and now operates in 23 U.S. markets along with 19 other countries spanning Europe, Asia, South America and the Middle East.
Monthly membership fees at WeWork start at approximately $200 to $300, with higher fees depending on the degree of privacy and other amenities desired by members.
WeWork and its competitors have recently drawn significant business investment, due in part to the industry's perceived long-term growth prospects as a workplace model in major markets. Just announced in August, WeWork has received a $4.4 billion capital infusion from Softbank.
Its business model could become more common not only in office properties but also in the nation's struggling retail centers. In late October, WeWork teamed with Rhone Capital to make a $500 million equity investment in retailer Hudson's Bay Corp. (HBC), then purchased HBC’s Lord & Taylor department store building on New York's Fifth Avenue in a deal valued at $850 million, according to CoStar data.
See CoStar COMPS #4038583.
WeWork will rent out about one-quarter of the building to Lord & Taylor, which plans to operate a scaled-down store there. The rest will house WeWork's global headquarters, along with co-work space to be leased to its office customers. A joint statement said the relationship will allow WeWork to partner with HBC across the retail company’s 61 million-square-foot global real estate portfolio, for future similar arrangements combining co-work spaces with premium retail.