WeWork lands another big tenant
Another big company is moving in with the co-working giant WeWork. And this one is taking the whole place.
The business catering service ezCater will lease all 100,000 square feet of space that WeWork is scheduled to open early next year at 40 Water St. in downtown Boston, with room for up to 750 employees on four floors.
WeWork typically rents its office locations to multiple tenants, often startups, small businesses, and entrepreneurs. The ezCater deal is the first of its kind in Boston, in which a co-working operator will run an entire office for a single company, and it reflects the co-working industry’s pivot to landing larger, more established companies that are seeking flexible work space and a hip vibe. WeWork has single-tenant deals in other cities, including New York, where it leases a building to IBM.
“We’re going to see more of these,” said Liz Berthelette, research director at the Hunneman real estate firm in Boston. “These co-working environments are flexible, they’re fun, they offer a different sort of work space.”
Flexibility — to grow or to contract as needed — was key for ezCater, said chief executive Stefania Mallett. The catering service has grown fast from its launch a decade ago in a small office on Bromfield Street, adding office space nearly every year. Today it has about 375 employees on four floors of an Arch Street high-rise and needs more room after raising $100 million earlier this year. Landlords offering more traditional office space wanted a long-term lease, Mallett said, and that didn’t feel right.
“Seven, eight, 10 years — it’s just a lifetime for us,” she said. “We don’t know what we’ll need in 10 years, so to sign a lease like that? I can’t imagine it.”
WeWork offered a five-year lease for all four floors of its new building at 40 Water St. — part of cluster of buildings that Related Beal is redeveloping. Mallett said WeWork would charge “a very reasonable breakup fee” should ezCater leave before the lease ends. The basic rent is higher than for a traditional office landlord, Mallett acknowledged, but after factoring in utilities, furniture, security, and other services — most of which WeWork provides — the total cost is comparable.
“They became pretty cost-effective,” she said. “And when you add in the flexibility, it’s a good deal.”
It’s a pitch WeWork and other co-working companies are making to a growing roster of big companies.
Amazon, Liberty Mutual, and General Electric all rent space from WeWork in Boston, and real estate industry sources say that the shoemaker Puma is close to signing a deal to lease two floors at a new WeWork on Arch Street. In a recent interview, WeWork’s chief development officer, Granit Gjonbalaj, said he sees a lot of growth potential in leasing big blocks of space to blue-chip companies.
“We just have massive demand from enterprise companies that want a floor or two or three,” he said. “We’re definitely going to continue to expand in that direction.”
For the co-working operators — whether WeWork or fast-growing competitors such as Industrious and Workbar — big tenants fill space quickly and reassure investors who have bought into high valuations, said Aaron Jodka, research director at the real estate firm Colliers International in Boston.
“When you hear IBM is doing an entire building in New York, that gives you a different comfort level as an investor,” Jodka said.
Deals on this scale increasingly put co-working companies in more direct competition with their own landlords. And those landlords are responding.
Related Beal declined to comment on WeWork’s deal with ezCater. But Boston Properties — which counts WeWork among its largest tenants — has launched its own flexible-office offering at the Prudential Center and will soon have another at 100 Federal St. in Boston.
“These customers are already out there,” Bryan Koop, who heads Boston Properties’ Boston operations, said in a call with analysts Wednesday. “We think there is still a significant opportunity for us to satisfy the needs of those customers.”
For now, though, the balancing act between co-working operators and major landlords is working out OK, Berthelette said.
“At some point it might become problematic,” she said. “But for the most part landlords view having co-working as a benefit. It creates a certain mix in the building that everyone likes.”