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Coworking seems to be one of the hottest trends of 2019. Large companies have started to use the spaces, investors are dumping millions of dollars into it, and everyone seems to be talking about this new trend that has taken over the commercial real estate world.
So, what is coworking? Coworking is an arrangement where workers from different companies share an office space, resulting in cost savings and convenience. It means employees from more than one firm operating together in the same workplace, splitting the costs of rent, electricity, and utilities. The number of companies can vary widely, as can the specific terms of the arrangement.
Coworking can be as simple as two companies coming together and agreeing to share an office. Nowadays, however, the term usually refers to large, communal offices run by a third-party organization that rents out the space to tens, or even hundreds, of smaller companies. These third-party companies have gained massive amounts of investment and real estate in the last five years, as banks and venture capitalists look to cash in on coworking’s new popularity.
In the following guide we’re going to go more into what coworking is, why companies use it, and whether or not it’s a good fit for your company. Read on!
As I said above, coworking at its base definition is just two companies sharing an office space to save on costs. In recent times, however, coworking has turned into something much bigger.
When people talk about coworking, they’re almost certainly referring to a designated coworking office. This is a large office building owned by a commercial real estate company that has the designated purpose of providing flexible office space to smaller companies. These large commercial companies (such as WeWork or Knotel) collect rent from the smaller firms, and in exchange they give them a place to work within the designated coworking office.
This type of coworking space has actually been around for more than a decade. It started with Sunshine Suites in 2001, a company that created a collaborative workspace and sold it to other, smaller companies. Coworking has grown massively since then; from 2005-2016, the number of firms who were using coworking spaces doubled annually.
The types of offices that you can buy under a coworking arrangement vary greatly depending on your company size, needs, and what coworking space you’re operating in. Some of the common types of office space that you can rent are:
When you buy a coworking space, however, you’re not just paying for the area that you work. Coworking offices usually have other amenities that help your businesses function, such as private meeting rooms, presentation rooms, computer labs, etc. There are also kitchens that will have complimentary coffee, snacks, and maybe even beer, to help you get through the workday.
One of the major selling points of coworking is that it’s supposed to save companies money by decreasing their overhead and saving on things like rent and administrative costs. Is this necessarily true, though? Can coworking really save you money?
According to this article, coworking can save a company as much as $2700 per month compared to a traditional office lease. The amount of money you save normally decreases as you bring more and more employees into the space; for firms with 12 employees or more, coworking might not actually make financial sense.
Standard prices for a coworking office can vary widely depending on what city you’re in, how many employees you have, and what coworking space you’re operating in. I’ve gathered some data below to give an idea of what coworking costs. All of the numbers are for a mid-market city (such as Boston) where real estate is decently expensive, but not as crazy as it would be in places like LA or New York.
You can also usually choose to increase your price based on the amenities you pay for. Access to board rooms or meeting rooms can be added on to the cheaper options (hot desks or private desks) for about $70 per month. The larger leases, like private office spaces, usually come with these amenities included.
As I mentioned above, coworking use has skyrocketed in the past ten years as more and more firms switch over from traditional real estate. What’s the driver behind this growth, however? What’s causing so many firms to make the switch?
Cost, as I said, is one of the main selling points of coworking spaces. Especially for smaller companies who are just getting started, coworking spaces can be a huge benefit by freeing up money for them to inject into other parts of their business.
Coworking is cheaper for two main reasons:
A lot of small companies who previously would not have been able to afford an office are finding that they can afford a coworking space. Additionally, many companies who previously had traditional commercial leases are making the switch to coworking as they start to realize how much money it will save them.
Coworking spaces usually let you pay by the month, which can be a huge advantage to companies who are looking to stay flexible. Instead of getting tied down with large contracts, they can simply pay as they go and retain the ability to upgrade, move offices, or cancel their lease entirely if need be.
The flexibility also comes with adaptability. Say you’re with a fast-growing company who’s constantly hiring more employees. Those new employees need a place to work. In a traditional commercial lease, a firm would have two options: buy an office that’s too big for their current workforce in anticipation of filling it later, or try to fit more and more people into the same workplace. With coworking, you can increase the amount of space you have on any given month and by however much you want to increase it.
Another aspect of coworking spaces is the sense of community that comes with it. Back in 2001, when Sunshine Suites opened the first coworking space in America, this was one of their main selling points. They focused heavily on the community aspect, even going so far as to purchase a cabin in Vermont so they could take all the companies within their building on ski retreats. This sense of community, and the ability to socialize with other workers, is one of the main things drawing firms towards coworking.
Entrepreneurship can be lonely, especially in the early stages of your business. Before coworking came along, freelancers or solo entrepreneurs essentially had two options if they didn’t want to work from home: cafes and libraries. Cafes are crowded and noisy (and the workers don’t always appreciate you taking up a table for 6 hours in a day), however, while libraries don’t give you the same ability to socialize.
Coworking provides the perfect solution to this issue, and many companies will happily spend a little extra money if it means they don’t have to work from home all day.
Lots of coworking spaces emphasize this community aspect by building in kitchens and lounges where you can take breaks from work and meet other, likeminded people, creating some incredible networking opportunities.
Coworking can actually make your employees more effective, according to this Harvard Business Review article. This happens for the following reasons:
Coworking spaces are filled with all types of businesses, but some use it more than others.
The prototypical coworking customer would probably be a small business with 3-4 employees who is in the start-up phase. These firms are just figuring out their operations and maybe starting to turn a profit, so they don’t have a lot of capital to be spending on real estate investments.
On the other hand, they’re starting to get to the size where operating out of a garage is no longer a viable option.
For these businesses, coworking not only provides a good place for them to work; it can also add a level of legitimacy to a firm. If they’re pitching to an investor, trying to hire a new employee, or arranging a meeting with another firm, doing so in a coworking space can make the company look a whole lot more official than it would by doing those same things around someone’s kitchen table.
As coworking has grown, however, so has the scope of companies who use it. Below are some other types of firms who have hopped on the coworking bandwagon:
We’ve talked a lot so far about the upside of coworking and all the benefits it can have on your business. Like all thins, though, coworking has its flaws, and you should be aware of them before you think about signing a coworking lease.
The sense of community that I was talking about can also be a downside for some companies who want to lease coworking spaces. Especially if they’re not able to lease a walled-off office, it can be difficult for a company to operate with any kind of privacy. For firms who are handling sensitive client information, or have proprietary secrets that they don’t want other firms to know, this can be a serious concern.
It can also have impacts on productivity, too. While the community aspect is good for the reasons I touched on, it can also come with a lot of unwelcome distractions.
More workers in one space means more noise, more people trying to talk to you, and more chance that you’ll run into someone you don’t like. This can make it harder for people to focus and get work done.
Because you don’t really own the space, you don’t get to make the rules. In your own office you can do whatever you want, as long as your landlord is okay with it. With a coworking space, however, you need to abide by the guidelines that have been set out for you.
These guidelines are usually set by head offices, who are far less likely to be willing to negotiate than a local landlord would be.
A major restriction that some companies don’t consider is the working hours. When you’re just getting your businesses off the ground, you’ll be working 10-12 hour days, ever day. If you lease spade in a building that’s only open from 9-5 on the weekdays, this can have a serious impact on your ability to get work done.
Coworking spaces are customizable to a degree, but there are limits on what you can do with the space provided to you. If you have a specific need in your office, or some special arrangement that you would love to see implemented, you may not be able to do it under a coworking contract.
So, we now know what a coworking space is, what the pros and cons are, and what kind of firms tend to use them.
By now you should have a good idea as to whether or not coworking is a good fit for your business, so it’s time to talk a little bit about how you actually go about finding a coworking office. The process is much simpler than finding a commercial lease, and you normally won’t have to find a broker or agent.
Step One: Determine what you’re looking for. Shopping without having a defined goal can be more difficult and time consuming, so you should always have an idea as to what you want out of your coworking space. What type of arrangement do you want (office, hot desk, etc.)? What’s your budget? How important is location?
Step two: Determine your options. Once you have a rough idea of what it is you want from your coworking space, it’s time to start seeing what the offerings are that your city has. Major work hubs will have tens of different coworking buildings to choose from. A quick google search, such as ‘Coworking Spaces New York’, should act as a good starting point to look around.
When checking out the coworking places, there are a few things to pay attention to:
Step three: Book a Tour. After going through the above steps, you should have narrowed your options down to three or four promising candidates. The next thing to do is book a tour, which you can do online. This will give you a chance to see the space in person and maybe even talk to some of the companies who are working there.
Step four: Make a decision. Finally, it’s time to commit to one space. Once you’ve chosen which space you think is best for your business, there’s nothing left to do but move in and start working!
The exact procedure for signing up for a coworking space differs from company to company, but there are a few similarities. After the tour, you’ll probably be provided with a representative from the company whom you can get in touch with if you want to move forward with the lease. Once you make a decision to rent, this person will be responsible for walking you through the paperwork is signed.
Because of their flexibility, coworking leases can be a lot less complex to understand. They’re also lower stakes, because you’re not getting locked in for the same period of time. Despite this, however, it can still be beneficial to have a professional read over the lease before you sign it to make sure that there are no hidden clauses or alarming sections that could put your businesses in a bad situation.
Payment usually happens monthly and can be canceled or changed at any time, but beware of the leases have automatic renewal clauses and hidden fees.
As I said, coworking has exploded in recent times, and tens of commercial real estate firms have made the switch over into offering coworking arrangements. Lots of cities have local coworking buildings, but there are a few national players are well:
Impact Hub: Impact Hub has over 100 buildings across 55 countries, making it one of the largest international coworking players. The company focuses on building communities within their buildings, along with promoting social causes such as the Sustainable Development Goals.
Knotel: With $95 million of funding raised in just under a year and 45 locations, Knotel is quickly announcing its presence on the coworking stage. The company focuses on the innovative design of their workplaces, along with their ability to accommodate larger firms, as competitive differentiators.
Industrious: Industrious is one of the largest-growing coworking companies out there. They focus on high-impact markets like LA and New York and have recently signed large companies such as Pfizer, Hyatt, and Lyft to their client list. Industrious sells traditional coworking spaces along with their ‘Canvas’, which is a customizable headquarters for companies with 20-200 employees.
If you’ve heard about coworking, you’ve probably heard about WeWork.
Started in 2010, WeWork was one of the first companies to really catch on and start selling the ‘community’ aspect of coworking. They expanded quickly, going international in 2014 and making an $850,000,000 acquisition of Lloyd and Tailor’s former flagship store in 2016. The company continued to expand into different endeavours, such as collaborative gyms and flexible living spaces.
In 2018 WeWork filed for an IPO with a valuation of $47 billion. Their operations and finances quickly came under scrutiny from the media and investors, however, who failed to see a viable path to profitability. The company cut their stock from $40 to $20, and then to $10. This whole time, WeWork continued to burn through cash at an excessive rate, until in 2019 there was a serious risk of the company going bankrupt.
WeWork began selling of businesses and shutting down expansions in hopes of avoiding bankruptcy. Finally, in the fall of 2019, WeWork’s CEO stepped down from his position after investors raised concerns about his leadership ability. Softbank, WeWork’s largest investor, appointed an interim leader for the company and gave it another cash injection to prevent it from going bankrupt.
WeWork is now hanging by a lifeline, with no leader and no clear path to profitability. Because of that, I hesitated to include it in the above list, although it does make an interesting story and a good cautionary tale for anyone who doesn’t look too closely at what companies they’re investing in.
WeWork’s failure, while not good for the company, has had little impact on the coworking space in general. Other firms are financially sound and have continued to operate smoothly, and very few analysts believe that what happened with WeWork signals any danger to the coworking industry as a whole.
Let’s see if WeWork can bounce back.
Of course, each co-working lease is a little different, but you can expect the lease to specifically address which part of the space is individual and which amenities all co-workers share. If you sign a co-working lease, you will likely find many of the following items addressed in the agreement.
Choosing a co-working space over a traditional commercial space really comes down to two main issues: cost and flexibility.
Co-working spaces are typically far less expensive, making them perfect for the digital nomad type—poets, writers, and lovers—who spend countless hours at coffee shops and internet cafes. Co-working leases are also great for entrepreneurs and start-ups, who don't yet have the capital to invest in a traditional commercial space (installing new carpet, building offices and boardrooms).
Co-working spaces are typically already constructed, furnished, and ready for use, whereas businesses who enter into a traditional commercial lease must deal with tenant improvements, often including a minor or major build-out. Finally, co-working leases typically are all-inclusive, while commercial tenants must pay a base rent plus their share of Common Area Maintenance (CAM) fees. These fees can vary month-to-month and year-to-year, making it difficult for small businesses or entrepreneurs to budget.
Many traditional commercial leases have similar terms which are much less flexible than co-working leases, specifically when thinking about the length of the lease. Commercial leases can go for years and it's highly unlikely you can get a commercial lease for under one year. This can be a drawback for growing businesses and startups.
Co-working leases can be as short as a week; some co-working spaces can even be rented on an hourly basis (check out Breather – the Uber of office space), beneficial to brand new companies who need some office space or meeting space for a specific project. Yet, co-working office space doesn't give new companies the space to grow. New businesses need to carefully weigh the costs and benefits of each type of lease. If growth is imminent, co-working office space might not be the right answer.
So, there we go! That’s the full guide on coworking: what it is, what the pros and cons are, what kind of companies are there, and how to get a coworking lease. As always, I’ve written a quick summary below: