The Information – December 12, 2017

By Paula Gomprecht | December 12, 2017

Real estate is often a significant expenditure for companies. Even large private companies like Dropbox and Uber spend tens of millions of dollars a year in leases in San Francisco, for example. Some large companies like Microsoft have already instituted the new standards.

A new accounting rule due to go into effect by 2019 will force public companies to disclose office leases on their balance sheets. Because it will increase companies’ reported liabilities—potentially making their financial position look a little less healthy—the pending rule is prompting finance executives to re-examine how much leased real estate they really need.

But the rules appear to provide a kind of loophole for space rented in co-working offices. A company’s rental agreement with a co-working company may be treated as a service, not as a lease, if the co-working company has the right to relocate the tenants, said Sean Torr, managing director at Deloitte. This could potentially make co-working spaces more appealing for companies once the rules go into effect.

John Arenas, CEO of New York-based Serendipity Labs, said he has already seen evidence that large companies are thinking about the changes: About a dozen large companies have told him they are looking to offload their small leases into co-working space. “Sophisticated CFOs have been watching the rule develop over the last couple years and have been moving their strategy,” he said.

Source, Cory Weinberg and Alfred Lee, Co-Working Startups Eye New Growth Driver: Accounting Change, The Information.