Co-working providers are great at getting companies to share space, but they're not as good at sharing among each other, at least in Chicago, where they're running out of room in the sandbox for everyone to play. That's the conclusion of a report from real estate brokerage Cushman & Wakefield showing the potential limits of the local land grab among shared-office providers like WeWork, Spaces and Industrious. Many of those companies have noncompete agreements with landlords that prevent rivals from setting up shop in the same building, according to the report. That means a co-working provider with two floors and a noncompete clause in its lease at a 30-story tower takes that entire building off the market for competitors. As a result, co-working providers "control" 18 times the amount of space they actually lease in the central business district, the report found. (Read the report below.) And the available space is shrinking quickly. An analysis of 86 downtown office buildings that Cushman & Wakefield defined as Class A—the highest-quality buildings—found that 45 of them have a co-working tenant with a noncompete clause or a co-working provider that has space large enough to effectively box out rivals. Another 19 of those buildings don't have at least 25,000 square feet of contiguous space available, according to the report, which used that as the minimum amount needed for a co-working provider to operate. That leaves just 22 Class A buildings for co-working providers to pursue downtown, according to the report. And while there are new buildings under construction or in planning phases that could free up more space—particularly in and around the Fulton Market District—that number could dwindle to just a handful of options if the co-working leasing bonanza continues, the report said. Noncompete agreements “have rapidly diminished the number of quality opportunities for (co-working) tenants," said Cushman & Wakefield broker Trevor Marticke, who frequently represents co-working providers on leases and helped conduct research for the report. "There's no other industry that comes close to this scale of non-competes." The numbers indicate a potential slowdown in a sector that has burst onto the downtown office scene as small businesses and large corporations alike have demonstrated an appetite for low-risk, flexible workspace they can lease on a month-to-month basis. Not all office landlords have bought into the trend, as some are skeptical of how co-working providers will fare when the economy softens. Still, many have used co-working to fill vacancies in their buildings. In addition to the growth of the tech sector and suburban companies moving downtown, co-working has helped demand for downtown offices roughly keep pace with new supply as new towers have hit the market. Downtown office vacancy has hovered around 13 percent for the past two years, according to data from brokerage CBRE. But noncompete clauses—something landlords don't face in most other office-user sectors—threaten to bring co-working's rapid expansion to a halt. For the 30 co-working companies that Cushman & Wakefield says operate in Chicago today to grow their footprints, they would have to either acquire competitors, pursue lower-quality buildings or pounce on locations where rivals don't survive. And across all quality building classes downtown, 62 percent of the market is now removed by noncompete agreements, according to the report. "The message to national co-working providers trying to get into every (major) city is you better engage the market now and plant your flag, or you're going to miss out," said Cushman & Wakefield tenant broker Matt Hoffer, who also works frequently with co-working providers. One way co-working firms are trying to fortify the space they lease today is by embedding themselves more deeply with landlords. Some have struck partnership deals in combination with their leases to manage building amenities or curate events and programming within the building, similar to what they do for their co-working tenants. New York-based co-working firm Industrious, which has eight Chicago-area locations up and running or soon to open, announced such a partnership agreement last month in conjunction with a 52,000-square-foot lease it signed at 231 S. LaSalle St. in the Loop.
The use of noncompete spaces are limiting options for co - workspace operators in Chicago . An analysis of Class A offices in downtown Chicago by Cushman & Wakefield found that 45 out of 86 properties have co - working tenants with a noncompete clause with their landlord or that are in a space large enough to exclude other co - working firms . After ruling out properties with less than the minimum necessary space , there are just 22 Class A buildings available for co - workspace operators in the downtown area , according to the report .