The dynamics of business and office spaces have changed a lot since the financial crisis. There is an increased demand for flexible and coworking office spaces. They are the trend and have been able to ride the boom that followed the 2008 financial crisis. The coronavirus pandemic may have been stopped briefly, but it is largely seen as a pause affecting this industry’s growth. A decade ago, many professionals would have been asking the question, ‘What is coworking space?’ but the industry has become very popular in recent times.
There are incredibly creative spots across this industry, and the current social pressure due to COVID-19 is affecting everyone. When you take a break from games such as Convertus Aurum and press pause on Netflix, it’s time to get real about what’s going on. Any dose of refreshment and creativity is good, but we need to have a harsh look at the future.
Outlook on The Coworking Space Industry
The world of coworking spaces will rise significantly in the next few years. It is projected to hit 20,000 by the end of 2020 before hitting at almost 40,000 within the next four years. Growth rate has taken a hit in 2020 due to the coronavirus pandemic, but it’s expected to rebound within a year.
A major attraction would be the annual growth rate, which is still projected at more than 20 every year. As a result, these spaces have become more than just a coworking space for writers.
Advantages of a Coworking Space
There has been an enormous impact on this industry due to its benefits to professionals and freelancers. Some of the key coworking space benefits would be the following.
1. Better Productivity
If a freelancer does not go for a dedicated coworking space, the person will likely not experience a space that permits 100% concentration into their work. However, this will be possible when taking out a dedicated desk.
2. Networking Options
This is easily the most significant advantage for anyone taking out space – even if it is a cheap coworking space. The presence of other individuals, who would also be involved in other industries, makes it easy to take things forward with new ideas and opportunities.
3. Better Collaboration Options
The likelihood of a new opportunity coming up with other individuals or companies is much higher when using these options.
Unlike renting out a proper office space, one can be very flexible when it comes to these options. It can be made into a short-term arrangement or long-term arrangement, depending on the need.
This business model will continue to be in demand going forward, but the real question remains about their profitability. Can flexible office spaces, which occupy only 2% of the world’s total office spaces, become profitable going forward?
Key Revenue Streams for Coworking Spaces?
There is a lot of diversity in coworking spaces, as it is possible to make money from different streams. The availability of various revenue streams should not be taken lightly, as each one has a role to play in increasing the profitability for the space owner.
The membership fees remain as the primary source of revenue for a coworking space. This source is split up into multiple avenues like shared desks, private offices, and dedicated memberships. The memberships can also be availed for the short or long-term. Some spaces can provide membership fees for daily, quarterly, or annual time frames. There will be a discount for longer memberships, but this ensures that the areas are profitable with a steady membership fee flow.
It is widespread to see those who rent coworking space becoming quite interested when it comes to the membership packages. There are packages meant to fit a different set of visitors. The package tends to become more effective when the member uses the facilities a lot more. The membership package usually comes with a lot of this concept benefits that can be availed at bars, food spots, clubs, gyms, and more. Even with many negotiations, the space owner will be able to generate a decent chunk of profit through membership packages.
Another attractive option that a coworking space franchise could use would be to rent the equipment and amenities. The premium options that can be rented out with a lot of profitability are individual lockers, video call cabins, etc. The conference room tends to enjoy a lot of popularity amongst users, as they have to hold meetings, presentations, or staff training under different scenarios.
How Are Prices Expected To Play A Role?
The price per desk is a crucial metric when it comes to determining the profitability of coworking spaces. This metric has had a dip in recent years. The price has dropped from a monthly average of $206 in 2018 to $183 in 2020. There has been a 2.4% drop in prices from 2019 to 2020. It is an obvious sign of increasing competition, leading to more affordable choices for professionals and companies.
The decrease in price per desk has been seen across the globe apart from Europe. From a monthly cost of $188, the coworking space directory in Europe has seen a price rise to $210. It represents a 2% increase yearly, but this may not be able to last for long. Zürich has been a key contributor to this increase, as it remains one of the most expensive cities based on the monthly membership price for a desk. In California, Palo Alto remains the most costly option with an average price of $511, while Zurich comes close with an average price of $458.
How Can Profitability Be Increased?
Around 50% of the coworking space business plan has been profitable so far. This number may not be the highest, but this relatively new industry has been snowballing. Due to the large number of coworking spaces opening up, it may take a few months before an operation becomes profitable. Studies indicate that around 70% of every coworking space is becoming profitable within two years after opening. There are some techniques through which space can become profitable. They are:
1. Increased Margins
The key to better profitability at the creative coworking space would be the increased margins. There are many variable and fixed costs for an operation at the end of every month. Even when the business expands, there will be additional costs in salary, rent, and operating costs. A space will typically make around 10% a month as profit.
The goal for a profitable coworking space would be to increase the profit margin rather than just focus on business expansion. If the margins are greater, the profits would also be greater. This increase in margin is made possible by offering high margin services to interested customers. Due to the growing diversity in this business, more customers enter into the core working space needed for the high margin services.
2. Getting Higher Spending Customers on Board
Even though the coworking space business model is primarily meant for attracting freelancers, they cannot spend as much money as a well-established company. Now, there is a tendency amongst these established companies to have multiple offices that are spread across countries. This is opposed to being confined to a single destination.
The latest trend involves trying to reach out to such companies, who would be interested in setting up satellite offices. These are high paying customers who do not mind spending that little extra for getting more convenience features.
3. More Private Offices
The profitable coworking spaces can increase their revenue by renting out as private offices rather than just membership plans that are focused on a single desk. The classic concept of renting out desks still remains, but more profitable spaces have taken advantage of the growing demand for private offices. The subletting does provide a robust financial basis even if it slowly takes away the coworking space meaning.
The success of a coworking space can be hugely dependent on the location. If these are located in megacities with at least 1 million residents, their profit share increases considerably. For example, a global coworking survey study found that their profitability increased by 55% if these spaces are available in major cities.
If the same space happens to be offered in a smaller city, the profitability is at a lower 30%. Even though the situation has been changing in favor of smaller cities, it is still not great, and it makes a lot of sense for setting up a coworking space in a megacity.
Predictions For Future
The coronavirus and lockdown have resulted in a substantial shift in the coworking space industry as a whole. The early data and signs point out to any increased demand as more companies are shifting towards smaller private offices. A popular study has also revealed that the number of seats that each request generates has gone up 26%. Longer contract signings have also increased to 96%.
The individual seat demand has gone down drastically, as more and more are opting for the private offices, which have seen an increase of 76% compared to the pre-lockdown. The virus is expected to be around for a while. Hence, it is unlikely that there will be a change in demand for the coworking space industry. A new setup will have to make use of the stats to develop a coworking space design that profits the most.
All this bodes well for the popularity and profitability of this industry.
What’s your take on the coworking space industry in the post-pandemic era? Let us know in the comments!
As a former litigation lawyer, Thomas has plenty of business experience. He is a business school graduate and holds an MBA. Right now, he delved into the world of startups with his own company: a consultancy firm.