Flexible coworking office spaces are now a major presence in Salt Lake City, but could the boom go bust?

(Chris Samuels | The Salt Lake Tribune) Erica Lemke-Pembroke works at a shared desk space at WeWork communal work offices in Salt Lake City, Monday, Sept. 16, 2019.

Utah’s expanding economy and its tech-centric mix of industries have combined to give the state a special place in the global business of coworking.

Since some of the first companies offering flexible office spaces launched in the Beehive State around 2010, the sector has mushroomed to at least 28 locations run by a dozen firms, including one of the country’s largest coworking operators, WeWork.

And while WeWork has hit trouble recently, some Utah observers see growth in the coworking sector as a sign of the state’s continued economic well-being.

Coworking “is this kind of wonderful petri dish for companies to just keep growing and expanding in Utah,” said Trigger Reital, who directs the tenant advisory group for Cushman & Wakefield, a Salt Lake City-based real estate brokerage.

Flexible offices, including coworking sites, typically offer access to fully equipped employee workspaces ranging from entire office suites to a desk or two, along with support amenities, in exchange for a monthly fee.

With the cost of office space in downtown Salt Lake City rising and land at a premium, employers wanting to locate in the urban core are getting creative. Although coworking can sometimes cost more on a square-footage basis than traditional office leasing, it is increasingly seen as a strategic option for businesses as a way to test new markets — beyond creating a home office or grabbing a table and Wi-Fi access at a coffee shop.

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Businesses can set up offices on a trial basis — complete, in many cases, with a receptionist, conference rooms, printers and coffee machines — and staff them with a few employees to gauge their likelihood of commercial success before committing a longer-term office lease, buying furniture and fussing with network cables.

That dynamic has appealed to out-of-state businesses seeking a Utah foothold in recent years. And the Beehive State’s rapid job growth since the end of the Great Recession, its central geographic location in the West, pools of young and well-educated workers, and a thriving technology industry along Silicon Slopes have all made it an attractive place for companies to land.

So it’s perhaps no surprise that coworking sites would multiply both in number and size across the metropolitan area spanning Salt Lake City to Provo as the state continues to pace the nation in job creation.

‘Perfect fit’

Coworking also has proved to be a sensible choice for many existing businesses.

“There’s a lot of companies that just don’t need traditional offices and just want something simpler,” said Travis Yates, vice president and and occupier advisory services specialist with the Salt Lake City offices of Colliers International, a global real estate broker.

Beth Noymer Levine, founder and principal of Salt Lake City-based SmartMouth Communications, travels a lot as she coaches executives across the country in public speaking and presentation skills. As the business she started 15 years ago grew, Levine found she occupied her traditional rented offices only about half the time.

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In August, Levine ended that lease and moved to one of two new WeWork locations at The Gateway in Salt Lake City, drawn by the fact her membership gives her access to facilities at WeWork sites anywhere in the U.S.

“It’s a perfect fit for me,” she said, noting that she pays about a quarter of what she once did for workspace. Levine said she regularly books offices and conference rooms at WeWork locations in Utah and New York to meet with clients.

“Everyone’s reaction has been overwhelmingly positive, partly because it’s beautiful,” Levine said of the decor inside WeWork’s Gateway 6 locale. “It’s absolutely gorgeous.”

Healthy slice

Flexible office spaces in the greater Salt Lake City-Provo region now make up one of the highest shares of total office space anywhere in the country, rivaling or exceeding those in many far larger U.S. cities, a recent study found.

Nearly 2.9% of all office space in the Salt Lake City-Provo market was devoted to coworking, serviced offices or places designed to incubate or accelerate growth for startup companies as of December 2018, according to the study by CBRE, a worldwide commercial real estate firm with Salt Lake City offices.

By comparison, CBRE found, the flexible-office share of total office space stood at 3.1% in Manhattan; 2% in San Francisco; and 1.9% in Seattle, Los Angeles, Denver and Austin, Texas.

The study noted that coworking in Utah has surged since 2017, just as job-creation has picked up steam. Across Salt Lake City and Provo, about 423,000 square feet was devoted to flexible spaces as of this summer, according to CBRE’s estimates, with industry players already committed to building another 350,000 square feet.

With that expansion, coworking operators in Utah have begun to specialize, catering to customers from specific industries, high-end corporate clients, women-only and other niches.

Technology companies remain big players in coworking, partly because their futures can be less predictable than those of companies in other sectors. They need flexibility.

Research suggests that tech firms now account for nearly one in seven jobs in Utah as the sector adds mass, particularly along the Interstate 15 corridor linking southern Salt Lake County and northern Utah County, known as Silicon Slopes.

Perhaps more crucial for the office space market: Of an estimated 6,711 companies in the state’s technology sector, nearly three-quarters had five employees or fewer, many of them startups with unknown growth trajectories.

According to Reital, of Cushman & Wakefield, “if you’re a high-growth company and you think ‘long term’ is three months from now, the idea of signing a five-year lease is absolutely scary.”

Coworking sites, in contrast, typically charge a fixed fee month to month, letting companies rent the spaces they need, often in advantageous locales, on a short-term basis while remaining able to react to market fluctuations. The appeal of being nimble goes well beyond tech companies, too.

But the same flexibility offered by coworking locations is also leading some to caution that occupancy at these sites could plunge in Salt Lake City and elsewhere if the U.S. economy slowed down.

It is even unclear to some market observers whether Utah’s urban core can support the large square footage of coworking spaces already brought on line — particularly now that an initial stock offering by a significant player such as WeWork has stalled amid criticism that it is financially overextended.

“Some of the holes that are being poked in WeWork right now can be poked through coworking in general,” said Yates, with Colliers International. “But other coworking firms have proven that they can have a more controlled and responsible growth path and not incur such extremely high levels of expenses and debt."

Sharing cultures

Coworking sites are held up as something of a millennial phenomenon, reflecting the supposed propensity of workers ages 21 to 40 or so to share and collaborate. Site operators market their workplaces as having a sense of excitement and the promise of cross-pollinating ideas and work practices among employees from various companies and backgrounds.

And with more than 14,000 coworking locations worldwide, the phenomenon has started to draw the attention of academic researchers — with some surprising results.

Research has suggested coworking sites tend to benefit workers more than traditional offices. Employees stationed in these spaces feel special. They have more flexibility and a sharper sense of vitality and learning while on the job. They also say they have a stronger sense of community.

A more recent University of Michigan study finds that even though coworking spaces bring together employees from various workplace cultures, those workers continue to identify strongly with their company, even after long stays in their coworking setting.

Based on surveys of more than 1,000 employees at WeWork locations across the U.S., researchers found indications that coworking can strengthen the ways workers relate to their employer. Their findings, published in April in Harvard Business Review, include:

  • A higher sense of professionalism and credibility compared to workers in traditional settings.

  • Greater feelings among coworking employees that their bosses take their needs seriously, wherever they might be located. One poll respondent in Denver told researchers: “I feel like my company values me. The atmosphere and buzz give my work a sense of importance.”

  • Employees with newer businesses having a sharper sense that their coworking spaces make a good impression on prospective clients.

Researchers at the University of Michigan’s Stephen M. Ross School of Business say those findings buttress previous conclusions that while an employer’s choice of a coworking space might be driven by finances, it’s also informed by experience and work culture.

“At a basic level, coworking is a service that simplifies the transaction of accessing and occupying a workspace,” the Michigan researchers wrote in Harvard Business Review. “However, it is also a social product that nurtures a sense of belongingness to its members.”

Big player

Beyond Utah’s overall growth numbers on coworking, many saw WeWork’s arrival as a key milestone and signal the trend officially had arrived.

Globally, the New York-based firm, founded in 2010, is viewed as a major real estate company, managing nearly 46.6 million square feet of office space across some 100 cities in 32 countries, by the firm’s own tally.

WeWork Chief Growth Officer Dave Fano chose Utah’s yearly Silicon Slopes Tech Summit in January to announce a major expansion into the state, with two locations at The Gateway in Salt Lake City and two more in Lehi. A fifth WeWork coworking site in downtown Salt Lake City is in the works.

Nathan Lenahan, vice president and general manager for WeWork, said at the time that the company typically starts with one or two locations in a new city and then scales up. But when it came to the Beehive State, Lenahan said in a statement, “we saw an epicenter of growth and innovation and knew we not only had to be here, but enter in a big way.”

“If anything,” he said, “we’re late to the game, but we’re just getting started.”

Around the time the company announced its first Utah locations, WeWork also took preliminary steps toward going public with an initial offering of stock to investors. That part of the company’s arc has not gone smoothly.

Market analysts and would-be investors reacted badly to WeWork’s financial prospectus issued in advance of the stock offering, known as an S-1. The firm, valued at $47 billion in January, drew heavy criticism over how it is overseen, its underlying business model and questions about its future profitability — particularly after news the firm lost nearly $2 billion in 2018.

Co-founder and longtime CEO Adam Neumann resigned in late September. And, as of mid-October, the company’s largest financial backer, the Japanese multinational SoftBank Group, had secured a deal to give Neumann more than $1.7 billion to walk away and surrender nearly all his voting rights, in exchange for taking control of the company.

The deal valued WeWork at $8 billion. The stock offering, meanwhile, has been postponed.

In Salt Lake City, flyers have shown up in work elevators serving WeWork’s locations at The Gateway, decrying plans by the company to lay off thousands of employees and blaming Neumann for the difficulties.

A WeWork spokesperson declined to comment on the layoffs but said the firm would retain its existing Utah locations.

“WeWork is focused on strategic expansion," the spokesperson said, "and we remain deeply committed to our landlords and members in Utah.”