The recent bankruptcy filing by national coworking space operator WeWork Inc. – once valued at $47 billion before its estimated worth plummeted to $360.9 million – is raising some questions about the idea that its flexible, shared office model could radically change the landscape of downtowns throughout the country.
While WeWork furiously renegotiates hundreds of leases and plans to break dozens of others in order to shed at least $3 billion in debt, the company’s downfall is not impacting Providence, and similar companies here have not become so dangerously overleveraged, according to local commercial real estate brokers and landlords.
“WeWork was grabbing up 100,000-square-foot spaces in Boston and New York. That’s not happening here,” said Thomas O. Sweeney, owner and principal of Sweeney Real Estate & Appraisal.
The relatively small number of flexible office space operators in Providence, such as Cambridge Innovation Center Providence, The Hive RI LLC and Regus Realty LLC, have demonstrated sustainable success dating back long before the COVID-19 pandemic, Sweeney says.
“It’s here to stay. And it’s probably going to grow to an extent,” Sweeney said. “I think with certain companies it works. I think there is demand. But we’re not bursting at the gills for people to make more of it.”
According to global real estate services firm Cushman & Wakefield Allliance, flexible office space makes up less than 2% of all office space in the top 20 largest U.S. cities.
The total inventory in the Providence office market is 23.5 million square feet and the vacancy rate was 12.4% in the third quarter of 2023, according to a recent report provided by Cushman & Wakefield Alliance member Hayes & Sherry Ltd., a Providence-based commercial real estate and retail brokerage company. Throughout Rhode Island, there is more than 200,000 square feet of flexible coworking space managed by at least nine operators, accounting for roughly 0.9% of the local office market, more than two times less than the average of the country’s 20 largest metropolitan markets.
“Rhode Island real estate does not follow the national trends, especially from a commercial standpoint,” said Matt Fair, partner at Hayes & Sherry.
Fair says that despite a relatively lower inventory of coworking office space, Providence continues to see both a high turnover rate and a strong demand for “top-quality operators” that provide valued amenities to clients, such as on-site support services, cleaning, kitchens, fitness centers, bookable conference rooms and even game rooms.
“From what I can see, the top-quality operators like Regus and CIC are doing very well,” Fair said. “I think Rhode Island, with its high concentration of entrepreneurs, freelancers and gig economy workers – they like this option.”
Not all coworking spaces established in Rhode Island have achieved sustained success. Coworking space operators that have shuttered in recent years include Elevate in Charlestown, CoLab in Cranston, and the Design Office in Providence.
“Some of the less-known and underfinanced operators are doing a bit worse, and struggling to maintain tenancy,” Fair said. “Part of that is the inability to provide a certain level of amenities that people want.”
Stacey Messier, general manager at CIC Providence, a 62,000-square-foot coworking space established at 225 Dyer St. in 2019, says she believes the business model “continues to rise in popularity” locally and globally.
“The way we see it is that there are great opportunities in the market that WeWork has failed to recognize,” said Messier, whose organization is home to more than 230 organizations in Providence. “They focused on low-cost office space that gets clients in the door, but it doesn’t result in customers wanting to stay for the long haul. It’s more than just cost per square foot. It’s about activation of shared space.”
Tuni Schartner, a consultant and director of The Hive RI, a coworking space she co-founded in 2013 at The Mill at Lafayette in North Kingstown, agrees that WeWork’s fall is not representative of the strength of the industry.
“I think WeWork is an anomaly,” said Schartner, who has more than 100 business tenants at The Mill. “I think coworking and flex working is on the rise. For the coworking space revolution, you’ll see coworking spaces building up closer to where people live, outside of the city.”
Joseph R. Paolino Jr., CEO and managing partner of Paolino Properties LP, which is the landlord to Regus Providence at 10 Dorrance St., says he met with WeWork representatives in New York City eight years ago about the company opening in Rhode Island. But “they didn’t think there was strong enough potential” in Providence, Paolino said.
Paolino says Providence may have dodged a bullet.
“WeWork leased tens of millions of square feet in different cities,” he said. “It’s a big problem for those big cities.”
Paolino acknowledges he would consider establishing his own coworking space due to the high rate of vacancies. “We’re in a very challenging time,” he said. “You have to think outside of the box.”
Mark Dixon, founder and CEO of International Workplace Group, the owner of Regus and operator of 4,000 coworking spaces with 10,000 employees, said he expects “there will only be a relatively small number of landlords who try and go it alone.
“The reality is this is a business that requires scale and experience to run it effectively and profitably,” Dixon said.
Dixon also said the popularity of coworking spaces is on the rise, citing a recent economic study that projected the flexible workspace sector will grow 600% by 2030.
“Earlier [in November], we reported our highest-ever quarterly revenue in our more than 30-year history and our network is growing at its fastest-ever rate,” Dixon said in an email to PBN. “The market for hybrid work solutions … is here to stay in the long run as employers realize the many benefits of the model.”