There are various places for entrepreneurs to found a startup.
In their basements or in their garages quickly (and almost famously) come to mind; perhaps in their living rooms, or if the founder is somewhat imprisoned at home, Starbucks can work.
But when startups get traction and it’s time to make a move, it still may not be time to sign a long-term lease.
What’s the answer? Leasing a collaborative, or co-working, space and riding a new-ish wave that offers access to huddle spaces, kitchens, high-end tech options and even a spot for Sparky to snooze while his human aims for world domination.
However, while collaborative spaces — which can also fall into the category of incubators and accelerators — are trending, there are questions about their viability.
After all, while the branding of a corporation like WeWork or Regus carries a certain panache, what’s their future when landlords like Columbia’s Corporate Office Properties Trust (COPT) and The Cordish Companies can offer similar options?
While that point is bandied about, the commercial real estate community is taking advantage of the shift in the market.
“It’s a huge trend and part of the shrinking square-foot-per-person concept,” said Darrell Nevin, managing director of the LeaseWright Commercial Team with the Columbia office of Keller Williams Commercial. “Technology has allowed this to happen, as well as the changing economic climate. [Those factors] makes it more difficult for many companies to commit to a lease for three-to-five years, because of [sudden] changes in their industries or with the economy.”
This “hoteling” concept exploded right after The Great Recession, Nevin said. “In Columbia alone, 60,000 square feet of new executive suite space was added to the office market from 2010 through 2013. In fact, it was the only growth area of the office market for several years.”
The concept has now taken on more unique experiential characteristics “typical in [COPT’s] CIRQL or WeWork [which recently purchased MeetUp, a service that facilitates scheduling meetings in real life centered around specific interests] spaces,” he said. “It’s a trend that has firmly taken hold with younger, smaller entrepreneurial companies and is a key magnet for attracting millennials in the workforce.”
But is the trend strong enough to keep spaces 100% occupied? That’s one of the first issues that can arise, said Owen Rouse, senior vice president, director, capital markets, with Manekin LLC, in Columbia.
“How do you throttle the demand?” Rouse queried. “Exiting companies might take another floor in the same building, but the landlord has to hope that they have someone coming in right behind the exiting firm or they lose money,” he said. “We’re still learning how to read the demand.”
That type of issue led Rouse to his next point, which concerns the valuation of WeWork’s stock. “There has been an absurd valuation for WeWork of about $20 billion on Wall Street, which is one of the biggest for a startup in history,” he said, after Uber and Airbnb, pointing to a recent article in Forbes.
“My concern, as cool as this concept is, is about [if WeWork] is really a sustainable $20 billion company,” Rouse said. “This is a trend. It might be a trend for a long time, but it’s a trend.”
Kelly Ennis, founding principal of The Verve Partnership, in Baltimore, is hoping that the prediction by Nevin and others of an expanding market comes to pass. Her company created interiors for collaborative places like Spark and Betamore, both of Baltimore (as well as Harkins Builders, in Downtown Columbia), and continues to target the sector.
“Image is important,” said Ennis. “We are finally seeing that spaces we’re designing are really about placemaking [and feature] collaborative areas, as opposed to generic board rooms. Long gone are those days.”
Those collaborative areas may include a couch that creates a casual, welcoming environment, for instance. “People were not meant to sit at a desk all day. We’re agile human beings, and workspaces are now about how people move,” she said. “So, we’re creating areas with coffee bars and huddle spaces that offer people options.”
This movement is about how people interact, then the design — like the Harkins project, which is not technically a collaborative space, but contains collaborative pods.
“This is about curating an office environment that [facilitates] employee retention, and know that Harkins’ recruiting efforts have skyrocketed at a company-record pace,” said Ennis, noting how generations age out. “Trends are directly related to demographics, and millennials wanted this.”
The success of co-working ventures, said Mike Binko, CEO of Startup Maryland, depends on a long-term view, including “motives, who’s calling the shots and how they’re engaged in the ecosystem model for innovation and entrepreneurship.
“If the co-working facilitator is simply looking for dollars per square foot, that’s a losing proposition,” Binko said.
“Co-working, incubation and acceleration require a keen understanding of venture lifecycles and resources required to inflect these ventures to next levels of growth. Players also need to understand the not-so-subtle differences between startups and small businesses.”
He considers the Cordish Companies’ Spark, in Downtown Baltimore’s Power Plant, a profile of co-working done well.
“Spark was not one of the first entrants into this market, and you can see that Cordish took some time to understand how co-working should fit into their model. One way they did was by taking a ‘concierge approach,’ and I think that pays dividends for new companies,” Binko said. “So, these millennial-run companies have not only the work space they want, but a social life before them [at Power Plant Live!]. Many of their tenants don’t need to own a car, as they and their teams live in town and commute by bike or transit.”
And, by the way, the commercial real estate market needs an ecosystem, just as startups do.
“Cordish has a diverse portfolio of options that Spark’s tenants can grow into,” Binko said. “Leveraging the concierge model with a hands-on team of ‘doers’ builds brand affinity with early stage tenants. Serving high growth potential ventures early in their lifecycle represents a compelling sales and pipeline strategy that’s tailored to the smaller Spark companies.”
Having been on the national leadership team for the reformation of Startup America as the Startup Champions Network, he and various colleagues had an opportunity to see entrepreneur ecosystems across the country first-hand, and understands the advantages that companies in the Baltimore-Washington area have.
“Anywhere in the state, startups have fairly accessable avenues to resources and support, particularly via co-working and incubation. Not every state or municipality has that,” Binko said.
They also need cash. “You also need successful entrepreneurs and active capital. Maryland is a well-to-do state, and we have the density of support and density of entrepreneurs — activation sideline money is our next opportunity,” he said.
In Your Town
But Binko said that even the smaller jurisdictions can rewrite their approach to economic development based on co-working. “The [Kansas City-based] Kaufmann Foundation publishes reports every year about how economic growth at any level is most sustainable when entrepreneurs start jobs-driving small businesses, and the ecosystem is in tune with the timetables and needs of high growth-potential startups.
But he also noted the difference in appetites for investing in economic development, depending on the stakeholder. “If you’re a state, county or municipality, you approach it one way; if you’re in academia, it means something else. If you’re a for-profit entity, the bottom line drives most decisions and timeframes.
“All of the ecosystem’s ventures are small at first, but the needs of small businesses with a legitimate opportunity to achieve high growth should be front and center for the entire ecosystem. And any community that wants a strong business ecosystem must celebrate entrepreneurship in all of its forms.”
There is that downside to understand, however, that Rouse warned about.
“It might not be clear to startup founders what the motivating factors are for different co-working options. Is it a commercial real estate play or venture development?,” Binko queried. “Startup founders need to be aware of this. If their business needs to go elsewhere, landlords of any type may not find it in their best interests to push the startup along if there isn’t another tenant-candidate in line to move into the vacated space. That’s a definite gray area.”
However, after having toured Maryland in depth for the past five years, Binko sees stellar results emerging from collaborative spaces.
“If one isn’t already within a half-hour of your door already,” he said, “one likely will be online soon. The newest entrants are coming to Annapolis, the Fort Meade area and the BWI Business District, and Regus and CIRQL are already expanding in Columbia Gateway.
Speaking of CIRQL and Columbia Gateway, COPT Senior Vice President Cathy Ward said CIRQL 1 is 100% leased to seven tenants at 7134 Columbia Gateway Drive, and CIRQL 2 is in for permitting and is 80% committed prior to starti
ng construction at 7142 Columbia Gateway Drive.
In addition, “We’re working on CIRQL 3 at an undisclosed location in Columbia, and are incorporating the concept in other locations throughout the company’s portfolio where we can continue to grow the brand,” Ward said.
She added that CIRQL is “very unique” in the market and has developed into a strong brand for COPT. “It doesn’t compete with Regus (which has a location right across the street from COPT’s Columbia Gateway headquarters); rather, they feed on each other, because companies have different objectives when they lease at one place or another.”
Each space is approximately 3,000 square feet and, as the market dictates, clients can bring their dogs to work, can hop on a COPT-provided bike and use cool tech accents in the shared conference rooms, like a Spark Board. As for concerns about replacing exiting clients, Ward said the demand “for CIRQL-type space is extremely high.”
George Davis, CEO at TEDCO, said that while there are questions about co-working, he feels it’s a good thing. “You want to have the spaces close to capacity, and most of them are pretty full. You always hope there is a need for one more, because that means they’re growing.
“The trend is interesting, because we’re trying to comprehend and understand the various ecosystems and what separates them,” Davis said. “They need space, and other innovations around them and to share resources and thoughts. It’s nice connected tissue.
“But, is this a long term thing?” he asked, hypothetically. “We’ll find out.”