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Make Room for More Co-working in San Diego

Report Forecasts 200,000 Additional SF Coming On Line Locally in Coming Year
May 11, 2018

WeWork recently opened the first two floors of what will eventually span 54,000 square feet of co-work space on four floors at the Aventine office building in University Town Center.

Courtesy: WeWork.

They seem to have already popped up everywhere, especially in places like downtown San Diego and Carlsbad, but a new Cushman & Wakefield report is forecasting that another 200,000 square feet of local co-working office spaces will come on line locally in the coming year.

San Diego County currently has 90 locations with co-work and related "flexible" space spanning a total of 1.2 million square feet. About 960,000 of that square feet - or 78 percent - came on line in the past eight years.

The rate of space absorption by major global providers - including Regus and WeWork - along with several other smaller operators is projected to accelerate in San Diego as the membership-based, flexible-use “hot desk” concept continues to gain favor over traditional office space.

“A number of providers are seeking to expand their footprint in San Diego, hoping to ink deals for space within the next year,” said Jolanta Campion, research director for Cushman & Wakefield in San Diego.

Derek Hulse, managing director in Cushman’s San Diego office, said estimates for space growth are based on factors including approximately 110,000 square feet of current requirements, as expressed to brokers by small and large firms currently scouting the San Diego market for co-working space.

Also, despite rapid growth in recent years, co-work space still represents just 1.6 percent of a total San Diego County office inventory of 77 million square feet. More co-work offerings could be coming to other large office submarkets that still have a relatively small inventory of co-work space, such as Miramar, Mission Valley and Del Mar Heights.

Downtown San Diego, Carlsbad and University Town Center currently lead the region in co-working square footage, and downtown alone has more than 244,000 existing square feet operated by large and small providers.

While not naming locations or neighborhoods being scouted, a regional spokesman for New York-based WeWork, who asked not to be named, said San Diego figures prominently in the company’s plans to expand its total co-working sites in Southern California from 17 to at least 30 by the end of 2020.

“Our real estate people are very active in San Diego,” the spokesman said.

Interior of WeWork office in the Aventine.
Photo Credit: WeWork

WeWork recently opened the first two of what will be four full floors of co-work space at the Aventine office building at 8910 University Center Ln. in University Town Center. The space will span 54,000 total square feet with a capacity for up to 1,000 hot desks for use by members in spaces with various individual and group configurations. Those spots add to a 1,700-desk space that WeWork opened in downtown San Diego two years ago, spanning about 88,000 square feet.

WeWork is not divulging how many have become members in San Diego, but the spokesman said the concept has been popular with users across several sectors, including financial services, public relations, marketing, software and other technology-related fields.

The new UTC space has several users involved in real estate, business consulting and biotechnology, among other fields. Spencer Parikh, CEO and founder of business support services provider Entrapoint, took a WeWork space on the 11th floor at the Aventine when it opened in early March.

Like other early-stage companies, his firm has never occupied a traditional office space, migrating instead from its origins in 2014 as a home-based business into co-work arrangements. He now has five employees, working exclusively at co-work sites while traveling within 10 other states.

“The customers accept this because they have become more familiar with the co-working concept,” Parikh said, adding that use of so-called hot, or shared, desks with collaborative areas is preferable to home-office lifestyles that create isolation and “cabin fever.”

WeWork also has at least two large-company users expected to take space at its UTC location, though it has declined to name them.

Hulse said co-work demand is likely to increase even if the local or national economy hits turbulence in coming years. During uncertain times, more firms will likely be seeking to retain flexible, short-term arrangements while they figure out their employment and space needs.

Some landlords have begun giving closer scrutiny to tenant financials, especially when dealing with smaller providers in an increasingly competitive environment.

“The landlords want to do business with the co-work space providers, but they’re still being cautious,” Hulse said. “They’re doing their due diligence in confirming the securitization of leases up-front.”

For instance, he said office landlords in some situations might be more apt than they were a few years ago to require letters of credit before dealing with some co-work space providers.

Cushman & Wakefield noted that San Diego County in the first four months of 2018 saw the opening of 83,000 square feet of new co-working space. At that pace, the region is on track this year to match or beat levels seen during all of 2016 (226,000 square feet) and 2017 (210,000 square feet).

By The Numbers - San Diego Co-work Spaces

Biggest Providers by Market Share: Total Market - 1.24 Million SF

1. Regus - 23 percent

2. WeWork - 12 percent

3. Premier Business Centers - 10 percent

Biggest Co-work Locations: Average SD Site Size - 13,800 SF

1. Boxer Workstyle (Miramar) - 103,000 square feet

2. WeWork (Downtown SD) - 88,000 square feet

3. WeWork (UTC) - 54,000 square feet

Biggest Submarkets by Inventory:

1. Downtown - 12 locations/ 244,625 square feet

2. Carlsbad - 15 locations/ 182,611 square feet

3. UTC - 6 locations/ 128,431 square feet

Source: Cushman & Wakefield

Lou Hirsh, San Diego Market Reporter  CoStar Group   
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