Occupiers Are Driving CRE Evolution

From coworking space to proptech, the needs of corporate occupiers are remaking the face of commercial real estate around the world

by Dave McKenna, Editor CREB on April 7, 2020


Coworking has often been thought of as a product of the gig economy and the go-to space solution for a generation of millennial entrepreneurs. But the explosive growth of the co-working model cannot be explained by these factors alone. Significant changes in corporate occupier needs are the primary driver of coworking as a space strategy.

The speed at which co-working has become mainstream has been breathtaking. The model was virtually unknown in the early 2000’s, but has grown by 1000% in the last ten years.

source: Emergent Research

Traditional Corporate Occupiers are Driving Evolution

In fact it is the large corporate occupiers fueling the explosion of coworking locations and not woolly start-ups. “The rise of coworking has been driven by demand from traditional corporate occupiers,” said Ryan Hoopes, Director of Corporate Real Estate Advisory at Cushman & Wakefield. “Corporate occupiers are demanding shorter leases and less capital expense in build-out,” said Hoopes.

Another sign that changing occupier needs are shaping the CRE space is in proptech. “Almost every innovation you see in proptech today is driven by the need to improve the occupier experience,” said Hoopes. Several startups are gearing up to focus on the corporate occupier in the leasing process.

Proptech Zeros in on Occupier Needs

Occupier.com founders Matt Giffune and Andrew Flint

Two VTS alumni have founded Occupier, a lease management platform targeting the tenant broker and occupier. Matt Giffune co-founded Occupier in 2018 with fellow VTS veteran Andrew Flint, with the idea of bringing modern lease management to the tenant side. “Tenants have traditionally relied on third party brokers to manage the deal process,” said Giffune. The transactions typically occur completely offline and are managed in email and spreadsheets.

Giffune and his partners see a void on the occupier side and no good SaaS solution available for them to discipline the process and gain leverage in the transactions. “We’re about aligning occupiers and their brokers in order to make better real estate decisions for their business. Given today’s uncertainty, tools like ours are more important than ever,” Giffune said.

Another occupier-friendly proptech start-up, Dallas-based Dottid, is also zeroing in on the transaction inefficiency as a way to put power in the hands of the end consumer of space – the occupier. “We want to make sure everyone has a seat at the table,” said Kyle Waldrep, Founder and CEO of Dottid.

Waldrep founded Dottid in 2016 as a new college graduate as he considered taking an entry level job as a commercial leasing agent at a name-brand brokerage. But he learned that the industry was mired in manual processes and lack of transparency. While Dottid is not exclusively focused on the occupier, it is designed to demystify the leasing process for the tenants, so they know when and how to be involved in the transaction.

According to recent CBRE Research, the coworking trend is a growing factor in occupier real estate calculation. A major driver is the global war for talent. Talent preference has eclipsed cost reduction as a key driver of work space investments. Employee engagement and talent attraction & development are two of the three most important drivers of corporate occupier real estate strategy; even ahead of cost reduction, according to the 2019 EMEA Occupier Survey conducted by CBRE.

Coworking is Response to Occupier Talent Strategies

Coworking spaces offer the sort of flexibility in lease commitments and top-end space amenities built in that are meeting the demand of the major occupiers today. The need for greater financial agility is key, according to Hoopes. That means better lease options and lower costs to fit-out the space. But of even greater concern is the space UX.

“Coworking is a now mainstream tool for corporate real estate strategy because if offers optionality, lower up-front capital, and curated environment amenities,” said Hoopes. Coworking is solidly part of the real estate landscape and continues to grow at over 12% per year globally through 202,2 according data from Emergent Research.

But the lease flexibility and curated environments come at a cost. “There is definitely a premium you pay for a coworking solution,” said Bryan Brown, Managing Director of Silicon Valley Bank. A publicly traded company (NASDAQ: SIVB) with twenty five offices in the U.S., SVB is systematically incorporating coworking into its corporate real estate strategy.

“As leases around the country and the world expire, we’re taking a hard look at coworking,” said Brown. The shorter-term lease and no build-out are attractive to SVB. “There is some really nice programming offered by the coworking operator, but it is not cheap,” said Brown. Some indications are that coworking is a much more expensive long-term space solution for any staff of more than about 10 people.

The rapid rise of coworking in the occupier strategy and the range of proptech solutions emerging to address occupier needs point to the broad transformation occurring in CRE globally. Clearly deep trends in the corporate occupier needs are shaping CRE around the world. The rapid rise of coworking is a response to the growing need for financial agility and lower capital expenditures. Contrary to common perception, the coworking surge is not primarily driven by the gig economy, but is reflective of the increasing commercial tempo of global occupiers. CRE and proptech are evolving to meet the needs of the end consumer – the occupier.


Cover Photo by Erik Mclean on Unsplash

dave-mckenna

Dave McKenna – Editor, CREB

Dave lives in Dallas, TX and can be reached at dave.mckenna@commericialrealestatebiz.com