As the year comes to a close, I wanted to reflect back on an article I wrote last January, where I shared my predictions about what would happen in the flexible workspace industry in 2018—all of which ended up coming true. Revisit my five predictions for 2018 below and stay tuned for my 2019 predictions soon!
Flexible workspace goes from “nice to have” to “need to have”
We knew it was coming, but even I was surprised how rapidly the flexible consumption model for real estate has been adopted by leading enterprise companies making decisions about their workplace strategy in 2018. As the economy continued to grow, the labor market tightened, and uncertainty for the future increased, companies (of all sizes) continued to push for on-demand real estate solutions that can expand and contract as their needs evolve. This combination has led enterprise organizations to demand more flexible workspace options with the amenities that keep employees happy and gives the company the ability to grow and flex without having to commit to a long-term lease.
This trend is evidenced by a recent Entrepreneur Magazine article, which noted that WeWork runs an entire building for IBM in New York, as well as Airbnb’s office in Berlin and Amazon’s office in Boston, as well as Industrious promoting their customer base as everyone “from freelancers to the Fortune 500,” including leading companies like Pfizer, Pandora, and GM. Convene also launched a workplace business this year to provide premium flexible workspaces for progressive and innovation-focused organizations that care about attracting and retaining today’s top talent.
Landlords evolve from “space-sellers” to “place-makers”
In the past few years, we’ve heard a lot from landlords about the importance of “place-making” in the real estate market. But 2018 was the year of action on this front.
Blackstone-owned EQ Office underwent a tremendous rebrand to establish themselves as a provider of employee-focused workspace experiences and partnered with Industrious to help make that happen (EQ is also partnering with Convene to help redefine the employee experience in the iconic Willis Tower in Chicago). In September, Tishman Speyer introduced “Studio,” their own flexible and coworking brand.
Convene also launched a partnership with Brookfield to run amenitized spaces in their Downtown Los Angeles portfolio, as well as in One Liberty Plaza, a beautiful property in Lower Manhattan. Convene also worked closely with the team at RXR to open Club 75, a members-only space on the penthouse floor of RXR’s 75 Rockefeller Plaza.
Every single commercial landlord is having to make the decision whether to buy, partner, or build flexible workplace options and amenities in their portfolios right now. The next 6 to 12 months will be fascinating as the competitive dynamics evolve and landlords ultimately determine the winners and losers.
The race to create integrated platforms
In order to provide more value for tenants, flexible workspace providers are fighting to offer integrated platforms that provide more than just four walls, Wi-Fi, craft coffee, and beer taps.
Look no further than Convene’s newly-announced partnership with The New Stand. Our mission is to create magical hospitality experiences for today’s office workers—the kind of experience they might come to expect from a boutique life-style hotel brand. With New Stand, we’ll now be able to offer convenient retail in our spaces and save tenants a trip to CVS. WeWork also bought into this trend in 2018 with WeMRKT, an in-house retail option that offers curated goods from WeWork members.
As the demands of today’s tenants continue to evolve and the amenities race heats up for landlords, these types of integrated platforms will be very attractive to those looking to partner with best-in-class service providers.
The emerging role of technology
2018 was a great year to be in the real estate technology business! Analytics platform HqO raised a $6.6 million seed round. WeWork acquired office management software firm Teem. And here at Convene, we brought the talented team at Beco into the fold.
Simply building beautiful spaces in desirable places won’t be enough in the flexible future. Tomorrow’s workplaces will need to be driven by smart technology applications that improve the customer experience and make these spaces run more efficiently, both for employees and asset owners.
The consolidation wave is coming
Here’s what I told The Real Deal on coworking consolidation at the beginning of November:
Convene’s Simonetti argued that the real threat to the industry is that there are too many co-working spaces in New York City catering to companies with 10 or fewer people…
Simonetti argued that eventually the flexible office industry will be dominated by a few big companies. Small firms can survive, but only if they can offer a niche product that is different from its big competitors — such as the women-only startup the Wing, which has raised $40 million and counts WeWork as an investor.
“Right now, we are looking at 10 potential companies in that space that are looking to sell, and I get another book or two a week from companies that are either looking to raise money or sell,” Simonetti said. “So the consolidation wave is happening.”
There’s a lot of players in the game right now, and the consolidation wave is upon us, as evidenced by Industrious’ recent acquisition of Assemble in Chicago and Blackstone’s acquisition of The Office Group. Not all platforms are created equal and as the consolidation wave continues, and the next recession hits, not all players in the game will survive.
The change in the market isn’t stopping anytime soon—in fact, it’s accelerating. Every week, there’s news of another major development, deal, or acquisition. Personally, I can’t wait to see what the future holds. Please be on the look-out for my 2019 predictions. Cheers to an incredible (and fascinating) 2018 for the industry.