How Landlords Can Lease Empty WeWork Offices as Flex Space

With WeWork’s recent bankruptcy, office landlords nationwide are finding themselves with a slew of suddenly available office space at a time when it has less demand than ever.

However, WeWork’s implosion does not mean that the need for flex space has completely evaporated.

Many signs point to there being value in office landlords examining flex space options, especially to serve small-to-midsized businesses. A third quarter 2023 report by Avison Young found that 67.6% of small to mid-sized occupiers – defined as companies occupying between 25,000 and 50,000 square feet – have recently chosen to relocate, compared to only 32.3% of large companies, occupying 100,000 or more square feet. The same survey showed that leasing activity for 2023 is 33.6% lower than in 2022 and that the average U.S. office listing rate stood at $37.77 per square foot, down 40 basis points year-over-year.  

In New York alone, WeWork created over 1.5 million square feet of vacant office space, affecting more than 35 different landlords, with an additional 440,000 square feet of abandoned leases in San Francisco.

Vincent Altieri, a partner in Citrin Cooperman’s Real Estate Industry Practice, highlights one conclusion to be taken from all of this – landlords who find themselves with suddenly available space due to WeWork’s bankruptcy can look into the option of leasing at least part of the space as flex space to capture some of the market share that WeWork is leaving behind.

Turnover is expensive, rent per square foot has come down due to low demand, and people are only in the office two to three days a week, making flex space an appealing option for landlords and tenants. Additionally, there is an opportunity to sign direct leases with existing WeWork tenants that are already in the space.

Altieri makes it clear that operating flex space is just one potential option for newly available space, and it may not be the right answer for every scenario. For the landlord who suddenly finds themselves with, for example, 100,000 square feet of newly available space, leasing all or part of it as flex space could be profitable and spare them the hassle of marketing a product with little demand. 

“Maybe you could carve the space into different buckets,” said Altieri. “You might have a company that needs 10,000 square feet and doesn’t need a large conference room, but would find the option to lease such space on an as-needed basis attractive. Or maybe a new company isn’t ready to commit to a 10-year lease, and a flex-type arrangement will save them money in the long term.”

Landlords may be hesitant to begin such operations without having the infrastructure or resources to manage booking flex space and the turnover of short-term leasing deals directly.  

“If you have a management company, you can hire a team dedicated to dealing with these types of things,” Altieri said. “It’s the equivalent of running a separate company – potentially setting up a different entity that leases and manages the space. Ultimately, you have to weigh the cost between trying to manage this yourself or engaging an outside operator”. 

Essensys is a leading global software and technology company that offers a platform for connecting, controlling, and automating building operations, with many features specifically designed to assist flex space operators in running their businesses. The Essensys platform helps flex space operators: 

• Coordinate tenants and digital services across multi-site, multi-tenant operations; 

• Utilize automation to reduce operational complexity while improving efficiency; 

• Provide Wi-Fi-enabled data and reporting capabilities to help truly understand tenants and their needs; and 

• Enable easier portfolio management and insights.

Kurt Patrick, director of business development for Essensys, has seen firsthand how converting available space to flex space can provide numerous advantages for owners.

“A coworking space that’s been given back presents an opportunity for the landlord to leverage the smaller offices and meeting rooms on an as-needed basis via technology. The hard part is providing real-time availability and fast, secure internet connectivity for tenants,” said Patrick. “Fortunately, having been born out of coworking, Essensys is well positioned to address not just the single coworking floor, but with shifting requirements like spec suites and sublets, we can connect the entire asset or portfolio overnight to maintain services for any tenants impacted by unexpected closures.”

Patrick will be part of a new Urban Land Institute (ULI)-affiliated group dedicated to advocating for and elevating the conversation around shared office/coworking space and the tenant experience. The group will seek to educate institutional owners on what is possible within the sector, in addition to being a proponent of the appropriate evaluation of shared office space. This new group will be holding a seminar at ULI’s spring conference to delve deeper and bring greater attention to this topic.  

Patrick noted that, at present, flex space operations are seeing lower valuations than even hotels, despite having agreements much longer than one-night stays.

For landlords who take the plunge into managing their own flex space, there are several factors to take into account during the initial planning phase.

In their advice to clients, Essensys highlights four key considerations when deciding whether to convert to a flex space operation and whether to self-administer the space or engage a partner organization to handle administration.

The four key elements are: Connectivity – ensuring that you have a thorough understanding of your technological infrastructure to be able to offer uninterrupted internet service; Adequate staffing, including those with experience running a flex space where possible; Security; and Compliance with the various insurance and legal obligations to your flex space tenants.

Essensys recommends that at the start, flex space operators ensure they are keeping track of all possible data, from on-site IT hardware and staffing lists to space efficiency calculations and occupancy rolls.

Landlords suddenly affected by WeWork’s bankruptcy should consider all of their options, including operating flex space themselves. To explore potential opportunities for your business and to learn how Citrin Cooperman’s Real Estate Industry Practice can help you achieve success, reach out to Vincent Altieri at valtieri@citrincooperman.com.

“Citrin Cooperman” is the brand under which Citrin Cooperman & Company, LLP, a licensed independent CPA firm, and Citrin Cooperman Advisors LLC serve clients’ business needs. The two firms operate as separate legal entities in an alternative practice structure. The entities of Citrin Cooperman & Company, LLP and Citrin Cooperman Advisors LLC are independent member firms of the Moore North America, Inc. (MNA) Association, which is itself a regional member of Moore Global Network Limited (MGNL). All the firms associated with MNA are independently owned and managed entities. Their membership in, or association with, MNA should not be construed as constituting or implying any partnership between them.