The coworking concept, already revolutionizing the way commercial office landlords design and market their properties, has begun spreading to other businesses. With the demand for coworking facilities projected to reach 3.8 million people next year, hoteliers are recognizing the importance of transforming their lobbies, business centers and meeting facilities into additional revenue generators.
While some hotel owners and brands have capitalized on the coworking trend already and are spending significant capital to revamp their lobbies and business centers, others are contracting with third parties to design and manage their coworking operations. Before embarking on any decisions, hotel owners and operators should consider their goals and the risks of any coworking venture.
Remodeling the lobby or meeting facilities to include a coworking space raises various legal and business considerations. Thus, the hotel’s management or franchise agreement and other governing documents should be carefully reviewed and possibly amended. The documents may provide specific requirements regarding brand standards, fees, outside contractors and insurance that can apply to nontraditional hotel uses. Zoning, parking, occupancy and legal requirements also may need to be considered.
To Charge or Not to Charge?
Some hotels offer free coworking services to all with the goal of attracting millennials and mobile workers. In addition to boosting income for the hotel's bars, restaurants and parking facilities, this helps build brand awareness while providing a sense of community. Other hotels are charging for individual uses, offering multiuse packages or contemplating a membership model. Hotels offering coworking services to nonhotel guests can appeal to potential customers by combining access to coworking facilities with the hotel’s other amenities such as fitness centers, pools or nightclubs.
Complimentary coworking access is a popular perk that can attract busy professionals deciding between multiple lodging options. Alternatively, by tying admission to a coworking facility to a hotel loyalty or rewards program, hotels can increase brand loyalty and reward their best customers with complimentary access to their coworking services.
Any hotel owner that intends to charge fees for coworking access should first consult its management or franchise agreement. It is likely that the agreement will need to be amended to address revenue from coworking. Along with determining whether to offer a pay-per-use, subscription membership or some other model, hotel owners and their brand managers or franchisors also will need to determine how income from coworking services will be distributed and how to brand and market this new amenity.
In addition to being easily accessible, highly visible and aesthetically pleasing, a coworking space should offer comfortable seating, ample electrical outlets and reliable high-speed Wi-Fi. There also should be areas available for people who need temporary privacy such as a conference room or designated area for taking telephone calls.
In order to ensure data security and privacy, hotels should consider offering a separate and secure Wi-Fi option to coworking customers, especially if those customers are not hotel guests. A dedicated high-speed Wi-Fi is critical to any coworking operation, which means hotels should be prepared to invest in the latest technology and plan to have skilled technology technicians available to immediately diagnose and fix any problems that arise.
Due to multiple strangers sharing the same Wi-Fi network, traditional password protection may not provide sufficient security. Hotels may consider offering coworking customers the ability to access the internet through an encrypted virtual private network. VPNs can help protect the confidentiality of a user's communications and hotels can charge additional fees for offering these and other premium services.
With the increase in the number of people congregating in the lobby, hotels should revisit their security protocols. Elevators will need to be upgraded to restrict access to guestroom floors and nonpublic areas. Hiring additional security personnel or installing more sophisticated surveillance cameras and safety measures should be considered. Another option is to install lockers or tables with lockable drawers where customers can temporarily store their personal items.
In any event, theft and privacy policies should be clearly posted and electronically acknowledged by Wi-Fi users. Hotel owners and managers also should take the opportunity to update their existing operating rules and policies to address coworking.
Another important area to consider is insurance. Supplemental coverage may be necessary to ensure that the hotel is adequately covered for potential personal injury and personal property damage claims from coworking customers.
Fire evacuation and other emergency plans should be reviewed and updated. Modifying the lobby to accommodate additional people may require approval from the local fire department. Moreover, the hotel's certificate of occupancy should be reviewed and possibly amended. Among other things, designs for coworking space should contemplate maximum occupancy restrictions, emergency exit locations and the requirements of the Americans with Disabilities Act as well as any other applicable local laws or ordinances.
Hiring a Third-Party Coworking Operator
The governing documents may restrict the hotel’s ability to contract with a third party to manage the coworking operation. While certain hotel brands have created their own coworking brand guidelines, there are several companies that specialize in managing coworking spaces.
Before engaging a third-party operator, hotels should conduct their due diligence of the operator and visit its existing operations. The hotel should ensure that the operator is able to comply with the applicable brand standards and that a mechanism exists in the agreement with the operator for terminating the operator with minimal disruption to the hotel's operations if the operator does not satisfy its obligations.
Joseph A. Guay is a partner in Holland & Knight's New York office and serves as the firm's Real Estate Section leader and co-chair of the Hospitality, Resort and Timeshare Group. Herman Lipkis is a real estate and hospitality attorney in the firm’s Fort Lauderdale, Fla., office.