What To Do With All Those Vacant Offices? Startups See Space For Everything From ‘Learning Pods’ To ‘Microgyms’

Wilfred Valenta, founder of Montreal- and Miami-based startup Silofit, found himself rarely using his $200 per month gym membership while working in sales for a tech company and traveling frequently. He wanted to rent out a small office space by the hour to work out while on the road, but didn’t find any options.

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So, he started Silofit two years ago to repurpose small office spaces by turning them into “micro-gyms” that can be rented by the hour.

Silofit is among a growing number of startups that are repurposing commercial spaces as many office workers continue to work from home amid the COVID-19 pandemic. With office vacancy rates in many major U.S. cities high, several startups are turning unused space into food distribution centers, storage spaces, boutique gyms, classrooms for microschools and learning pods, and co-working spaces, among other uses.

Valenta, for example, saw a market opportunity to repurpose commercial spaces as small gyms that personal trainers could rent to work privately with clients, allowing them to keep a greater percentage of their revenue, or that people could rent to work out alone or with others.

There were companies offering storage space as a service, retail space as a service or co-working space as a service — but nothing for fitness, he said.

Prior to the pandemic, utilization of Silofit’s spaces was about 80 percent trainers and 20 percent individual users. That shifted to a 50/50 split during the pandemic, as more people wanted a private space to work out.

“There was definitely an uptick because our spaces are private and people view those as sanitary spaces where people can work out alone,” Valenta said.

Silofit also found itself benefitting from both sides of the market. On the supply side, commercial real estate was relatively cheap. On the demand side, a lot of gyms had temporarily closed during the pandemic.

The company typically finds a 500- to 1,000-square-foot space in a multitenant building and leases it for five to 10 years. Afterward, the company, which recently raised a $10.25 million Series A funding round, then guts and renovates the space to include equipment and a shower before putting it on its app for rent.

Silofit has 20 locations across Toronto and Montreal, and aims to open another 50 locations across the United States in the next year and a half, in cities including Miami, Chicago, and Boston.

Sky-high office vacancies

Startups that repurpose unused space have seen a surge in usership, as companies look to make use of empty offices while employees continue to work from home during the ongoing pandemic.

Office sublease space in North America increased 76 percent year over year in the second quarter of 2021 to 147 million square feet, according to a report by commercial real estate brokerage Cushman & Wakefield. In the first quarter of 2021, office sublease vacancy in North America surpassed the levels seen during the financial crisis and dot-com recession.

Available sublease space has continued to increase in the second quarter of 2021, but at a slower pace, according to Robert Sammons, senior director of Bay Area research at Cushman & Wakefield. Though in some markets, such as Washington, D.C., and San Francisco, sublease vacancy actually fell because of space taken off the market or tech tenants wanting to expand into prime space.

“It’s certainly improved in the second quarter, but we still have a long way to go, quite frankly, to recover,” Sammons asid.

While there’s still demand by large companies for Class A properties—so-called “trophy buildings”—commodity space is struggling, according to Sammons. Large companies, especially tech companies, want to secure space in the nicer buildings in town while it’s cheaper, but commercial spaces in Class B and C buildings aren’t seeing that demand.

In the meantime, some companies are finding other creative uses for commercial space.

Utah-based peer-to-peer storage marketplace Neighbor has seen commercial square footage on its platform grow nearly 25x since before the beginning of the pandemic, CEO Joseph Woodbury said in an interview. Neighbor lets individuals and businesses rent out their unused space for storage purposes—something like the “Airbnb for storage.”

“It’s been pretty dramatic,” Woodbury said of commercial space availability on its platform. Neighbor mostly serves two types of commercial clients on its platform: the big property managers that are publicly traded, and small business owners.

The pandemic forced large commercial real estate brokers to reevaluate their portfolios, and storage was likely not something they were considering before, Woodbury said. But renting out space for storage is reliable income, and there are commercial buildings that were previously used for co-working spaces now listed on Neighbor’s platform.

The other type of commercial real estate owner on the Neighbor platform is the small business type, Woodbury said.

“Oftentimes, these sorts of people, they were literally facing the prospect of ‘I can’t make my business lease payment on this space or the mortgage payment,’ if they bought, and we literally saved those small businesses during the pandemic.”

Woodbury pointed to a commercial property in Los Angeles that had a retail space and parking area. The business converted the retail space into storage, and turned the parking space into long-term vehicle and boat storage.

But while many employees have been working remotely for more than a year now, there hasn’t been one big player that’s emerged to specifically tackle the issue of office space vacancies, according to Elena Ruiz, an investor on Plug and Play Ventures’ real estate ventures team.

“Some of the companies are going back to the office, some are not,” Ruiz said in an interview. “The future is uncertain, which is why there aren’t big startups coming up.”

Instead, there are a growing number of startups doing different things related to space, whether offering it for storage, as distribution centers for e-commerce companies, indoor farming, or retrofitting them for other purposes, according to Plug and Play Ventures investor Paula Palermo.

And they’re not all proptech-related companies, either. For example, New York-based edtech startup SchoolHouse uses commercial space for some of its “microschools.”

Another emerging trend, Palermo said, is food companies using unused commercial space as distribution centers, so produce can be closer to its final destination.

Before, spaces were allocated for specific purposes, she said, whereas flexibility is the theme now.

“The current situation is making spaces be flexible,” Ruiz said. “You’re not going to have a space for one specific thing.”

Illustration: Dom Guzman