SF Employers See Coworking as Back-to-the-Office Alternative

After struggling through the pandemic, coworking offices in San Francisco are making a comeback as individuals and enterprise clients prioritize flexibility and turn-key solutions for office space.

WeWork said its San Francisco bookings the week after Labor Day were up by two-thirds compared to 2021. That week also saw the most bookings of any four-day period so far this year. Some of that increase was driven by demand during the Dreamforce event, said Elton Kwok, WeWork vice president for California and Nevada, but bookings stayed up after the Salesforce conference ended, “indicating a steady appetite for flex work spaces, despite the conference presence downtown.”

“San Francisco continues to be one of our strongest markets in the U.S., showing that people want to come back to the office,” Kwok said via email. “Our building occupancy for the San Francisco market currently sits at 75 percent as of [second quarter] 2022. We have seen steady growth month over month.”

The trend is taking off outside San Francisco as well, with JLL’s 2022 “Future of Work” global survey of more than 1,000 corporate real estate decisionmakers showing that 43 percent plan to accelerate their investment in flexible space over the next three years. More than half say they will lease that space through a third-party provider.

Flex space data is of particular interest to local commercial agencies as an indication that the city’s businesses still see value in having an in-person work experience as vacancy rates in the downtown core hit their highest point ever, according to Colliers. The brokerage’s data head Derek Daniels said he has his eye on bookings at coworking spaces as one of the biggest “signs of confidence in physical offices.”

Working near home

Those offices may not necessarily be downtown, however. Laurent Dhollande, CEO of regional coworking and virtual office provider Pacific Workplaces, said his company’s 14,000-square-foot San Francisco office in Rincon Hill is currently only half full. That marks an “incremental” uptick over last year, he said, but the company’s Rincon Hill office and its downtown Oakland office are by far the worst performing of its 18 locations. The rest, located mostly in suburbs surrounding San Francisco and in Sacramento, are “approaching full occupancy” after being “dead flat for months and months in 2020 and 2021,” he said.

Both hybrid workers and those who can work from home full-time want a professional working space where they can both concentrate and “bump into other human beings” after years of isolation, he said. They just don’t want to commute up to two hours to do it.

“The whole idea is to be close to where people live as opposed to downtown, because people are not coming back downtown,” he said.

The commercial core will recover eventually, said Dhollande, who added that his company has no plans to give up its struggling downtown locations. But in the meantime, “it is not the vibrant community we used to have before COVID. Those vibrant communities have moved to the suburbs.”

To that end, Pacific Workplaces is opening its second location in San Francisco this month near the top of Van Ness, away from the downtown core and close to professionals living in Pacific Heights, Nob Hill and Polk Gulch, who are likely to be in hybrid or work-from-home jobs.

“It’s close to where people live, like our suburban locations,” he said. “It just happens to be in the city.”

The 10,000-square-foot coworking space won’t have its grand opening until next month, but the company is already fielding “a lot of inquiries” about the space and is eyeing other commercial corridors in the city close to popular neighborhoods that have historically had minimal office space of any kind, Dhollande said. He has no doubt he’ll find interested clients, he said. The hard part is finding space because there are so few commercial buildings outside the downtown core.

Virtual survival

Downtown, meanwhile, has plenty of office space, with more likely on the way — some of it given up by coworking spaces that didn’t make it through the pandemic. The Wing, the high-profile all-female coworking space, ceased operations and closed all of its pink-hued offices, including one in San Francisco, at the end of August.

Dhollande said he knows of many smaller coworking spaces that shuttered during the pandemic and that Pacific Workplaces was only able to fulfill its commitments to its landlords over the last two years because of its virtual office offering, where for a low fee clients can use its offices for a business address and have their mail tossed, forwarded or scanned and sent to them. He estimates the virtual side of the business brings in $45,000 of revenue each month in San Francisco alone, and makes up about 30 percent of the company’s overall revenue.

“Without the virtual office business, it would have been very hard,” he said.

Flexible work spaces occupy only about half of the square footage that they held before the pandemic in San Francisco, according to Colin Yasukochi, head of CBRE’s technology research. But the 2 million square feet that remain are occupied at a higher percentage today than the 4 million were before the pandemic, he said, due to the current popularity of remote and hybrid work.

“Companies are increasingly using flex office space during these uncertain times when determining their own office space needs is difficult,” he said via email.

Tax Bit is one such company. During the pandemic, the Salt Lake City-based crypto tax software company settled on a three-day in-office work week as part of its company culture, according to Michelle O’Connor, the company’s communications vice president.

O’Connor lives in Marin and started working from home for the company in November 2020. At the time, TaxBit had only 20 employees, and it now has more than 300, she said. It has already outgrown its Seattle offices and didn’t want to have the same problem when it opened its San Francisco office after hiring a Bay Area-based COO in 2021.

‘FinTech hub’

O’Connor looked at traditional offices but liked the idea of being able to easily expand the firm’s footprint within an existing office setup. TaxBit signed a 12-month lease for an 800-square-foot office at the WeWork offices at 535 Mission Street. The key factors behind the decision were the ability to grow, the location near transit options and parking convenient for workers coming throughout the Bay Area, nearby amenities like restaurants and Salesforce Park, and clients like Deloitte that are in the neighborhood.

“We definitely wanted to have a presence in the Bay Area because it is a FinTech hub,” she said. “And it was just about being able to be agile as we figure out our pace of scale and growth.”

She said there are downsides to the flex office space, which opened in September. One is the lack of storage space to hold TaxBit swag. Eventually, the company wants permanent, branded space in the city similar to its offices in Utah, Seattle and Washington, D.C. But for right now, the flexibility of the WeWork space, where the company can also extend its lease by a few months while hunting for a permanent spot, has won out.

“Even though there’s a lot of real estate on the market, finding the one we want when we decide to go permanent, I’m not sure it’s an overnight thing,” she said.