Startups move to co-shared offices amid high real estate prices


A map showing the locations of coshared offices in New York, courtesy of We Are Made in NY

A map showing the locations of coshared offices in New York, courtesy of We Are Made in NY, a government initiative for startups. Photo: Karim Lahlou.


In early August, a six-story Silicon Alley office building on West 23rd Street went on the market for $29.5 million, almost six times its estimated market value. With neighbors like Google and eBay, the realtor, Massey Knakal, hopes to attract technology companies. It will have to be someone who is already in that league: Although Silicon Alley began as a collection of startups in the mid-90s, its skyrocketing real estate prices have pushed aspiring entrepreneurs to seek alternative office spaces beyond the boundaries of Chelsea and Flatiron District, the birthplace and nexus of New York’s technology sector.

“Office space or centralized locations for employees will always be necessary when a company reaches a certain milestone of success,” says Jeremy Hodkin, the 22-year-old CEO of KIS Group, a startup that provides aspirational and how-to videos, ranging from a reputable chef on how to choose Romano beans to the editor of an auction magazine on the art of buying auctioned art. Hodkin, a senior at Yeshiva University, manages his company of eight employees, and while he’s not yet ready to invest in an office, he has looked at co-working spaces. It’s the only option, he says, because traditional leases “try to lock you in for a three-year agreement…most startups don’t know if they’re going to be around three months from now.”

Co-shared office spaces offer month-to-month agreements, and instead of renting floor space, the tenants rent desks or cubicles, usually in an open floor plan where they are able to see and talk to workers from other companies. It is not unusual to have dozens of companies on a single floor, as the average startup has only five employees, according to Business Insider, a business and technology news website. The amenities, which significantly reduce overhead costs, commonly include high-speed internet access, printing and copying machines, conference rooms, and a shared kitchen. There are 77 such co-working spaces in Manhattan – though only a handful in Silicon Alley – which allow fledgling companies to have a presence in New York City’s growing tech sector, the second biggest business sector after finance, according to a report released by Bloomberg Philanthropy in September.

WeWork, New York’s biggest provider of co-shared office space, was founded in 2009 with a single location in SoHo and today has 11 locations around Manhattan, three in Midtown, one in the Meatpacking district, and the rest in SoHo. In 2012, WeWork received $6.86 million in venture-backed funding and opened three locations on the West Coast, and is currently expanding to Washington D.C., Boston and Chicago.  A web search of Silicon Alley office space listings in Chelsea and the Flatiron District showed a price range between $5,000 and $8,500 a month for 2,000 square feet, well above the $275 to $650 a month quotes for co-shared office space.

Though alternative workspaces are still a tiny fraction of the office space real estate industry, Ari Gottesman, who worked as the community manager of WeWork for three years, says that it is the future. Gottesman, who currently works for Moschelle, a Canadian real estate company in Montreal, says that the most exciting aspect of the new environment is a surprisingly old-school notion – that there’s value in the constant interaction between tenant companies.  Instead of relying on online-only resources like LinkedIn, people can simply talk to each other. “What if everything you need is your neighbor?” says Gottesman. “What if everything you need is in your building? It’s so easy to locate sources like that and find connections and find new ways to collaborate with people.”

A study released last year by Shikhar Ghosh, Harvard’s Senior Lecturer in Entrepreneurial Management, estimates that three out of four startups fail. Shared space reduces the financial risk for new businesses and improves the odds of a productive synergy with someone at the next desk, or across the room.

Indmusic Network, a startup that helps independent bands, labels and artists monetize their work on YouTube, moved their offices to the The Yard in Greenpoint, a co-shared office space, in March 2012, seven months after their founding. Jon Baltz, the co-founder of IndMusic Network, says that his company has worked directly with artists and music labels who also use the space. “We’ve met a lot of people anywhere from graphic designers and architects to public relations workers.” says Baltz, “It’s a huge range of people and we’ve found that even if we can’t work with everybody because what we do is so specific, we’ve just found it’s great having that creative atmosphere.” Though Baltz enjoys the monthly events The Yard provides, including art shows and gallery openings, his company will take the next step and move its six full-time and two part-time employees to a traditional office space at the end of the month; they’re looking to expand their company to a staff of 12 full-time employees.

While location and price make co-sharing office spaces attractive to startups, some providers, like SoHo-based Fueled Collective, seek to differentiate their spaces with eclectic interior design – in the Collective’s case, real and reproduced vintage English decorations such as Victorian sofas, candlestick telephones, and black-and-white portrait photographs alongside modern office equipment.  Fueled Collective’s design is a big draw for prospective tenants, according to Ele Bernstein, the office manager whose title within the company is Moneypenny, who says visitors often tell her that they have toured other co-working spaces and found them to be dark and not very welcoming “It’s one of the key factors that lets us stand apart from other co-working spaces…most companies are startups; we want to make sure they feel comfortable bringing their clients into the space” she said..

Currently Fueled Collective has a waiting list, but has had discussions about expanding their co-shared offices. Bernstein doesn’t consider other providers of co-shared office space in New York as competition:  “We are always open to collaborating with other co-working spaces,” she said, “and facilitating relationships between our companies and the companies that they have in their space.”

A real estate report released on September 19 by The Independent Budget Office, a publicly funded agency that provides economic and policy analyses for New York City’s budget, estimated that New York City will need around 52 million square feet of new office space by 2040.