MacRo LTD Blog

The (R)Evolution of Frederick Office Space

A whole new sub-market of commercial real estate is emerging in Frederick County.

cowork-office-space-webI’ve written before about the fact that the commercial real estate industry is ripe for disruption in terms of the new technologies being developed and utilized for sales and leasing.

But the market for the very product itself—commercial real estate assets—is also experiencing a major upheaval.

We are over a decade into the “Information Revolution,” and like the “Industrial Revolution” before it, we have experienced tremendous changes in a very short time in both how people work and where they work.

Businesses are seeking flexibility from what has traditionally been an extremely inflexible asset—commercial office space. Here are just a few trends that are disrupting the commercial office market:

  • Younger generations, including X, Y, and the millennials, prefer working within the framework of highly collaborative business processes and environments. This preference is driving dramatic change in both organizational charts and office space configuration.
  • Rapidly developing and changing technologies have forced companies to become highly nimble in responding to consumer demand and shifting markets in order to survive.
  • The lingering recession has caused a bad case of what I’ll call “commitment issues” in corporations across the U.S. Traditional commercial office space is a pretty big commitment.

Shadow space plays a part in all of this as well. I’m not sure who coined this bit of wisdom, but it’s true: the most expensive piece of real estate on your balance sheet is the space you are paying for but AREN’T using.

And so in a relatively short period of time—about 15 years—an entirely new sub-market of commercial real estate has emerged: serviced office space.

In a nutshell, serviced office space is lease-able commercial office space—from just a desk in an open bullpen to multiple locked offices and conference rooms—leased on very flexible terms (anywhere from a day to months or even beyond a year). The leases often include facility maintenance and business office services. These office spaces can be unfurnished, formally furnished and anything in between.

Frederick has had a few local players in this market, including Monarch, A Corner Office, and FITCI (which is actually more of a technology incubator than just a serviced office provider).

However, the game in Frederick is about to change, as serviced office giant Regus opened its first facility in Frederick this month, with 43 offices in a total of 9,700 sq. ft.

Regus accounts for 20% of the global market in serviced office space. (Their next-largest competitor holds bragging rights for just 2% of the market). Regus offers sleek, formally-furnished Class A offices and meeting rooms, business services such as mail and phone answering and amenities including a staffed and catered coffee-shop style eating area.

Why Frederick? Given that Washington, D.C. is the 14th largest serviced office market in the world, and that Regus has over 1,500 offices there, it makes sense that they would explore the Frederick market.

According to David Fraser-Hidalgo, Regus’ Frederick Area Sales Manager, his target market for Frederick is “government contractors, agencies, and consultants seeking flexible, short-term office solutions for project work teams; entrepreneurs ready to leave their basements or who need formal conference space or offices to meet clients; and traveling professionals who prefer to work at Regus locations wherever they find themselves doing business.”

In addition to Regus, Cowork Frederick also opened their doors this month.

Coworking, a phenomenon MacRo report covered last year, is a secondary trend that grew from serviced office space— in fact, it was conceived by a former Regus tenant. Coworking spaces tend to be more open, informal, and collaborative—think more Starbucks coffee-shop vibe than formal Class A office suites.

Glen Ferguson, owner of Cowork Frederick, already finds professionals in marketing, IT, and creative fields to be drawn to his space. “Opening day signups exceeded our expectations and new members are steadily joining,” said Ferguson. “In terms of membership we are seeing some clustering—freelancers and entrepreneurs in similar fields but with different skill sets who want to collaborate, share ideas, find partners for project—exactly the kind of people who gravitate to co-working spaces.”

A third coworking space, the Business Factory of Frederick, was slated to open by October of 2012, but according to General Manager Peggy Richman it has been a challenge for local landlords to grasp and embrace the coworking business model. She and her partners are currently in negotiations for a space in Frederick County.

Richman’s target market is non-profits, businesses in transition, and start-ups requiring reasonably-priced commercial office space and a jump-start from what she is calling a “business accelerator.” In terms of the facility, Richman plans to “fall somewhere between Regus and an open-bay collaborative workspace.”

“The Business Factory won’t be a formal incubator like FITCI, but we will be a lot more hands-on with business mentoring than a typical coworking space,” said Richman. “We want to be that resource for people to overcome the paralysis and fear that keeps them from pursuing their professional dreams. So many people don’t like their jobs and would love to open their own business or nonprofit, but they don’t know where to start. And then you have entrepreneurs who won’t get to the next level until they stop meeting clients at Starbucks and Panera. That’s where a business accelerator can help.”

On the surface, the rampant growth of the serviced office market industry, and its spread to Frederick, may appear to be a threat to the traditional commercial office market here.  I don’t agree—in fact, I see a number of promising trends and opportunities coming our way as both serviced office and coworking providers in Frederick gain a foothold in this market.

Read more on this topic in Part II!

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes

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