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Highs, lows of coworking space in sharing era
JP/Jerry AdigunaSwift technological developments are continuously transforming the relationship between assets, spaces and economic activities
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JP/Jerry Adiguna
Swift technological developments are continuously transforming the relationship between assets, spaces and economic activities. Spearheaded by the ride hailing app Uber and Airbnb renting space, the rise of sharing and collaborative forms of the economy is innovating the way people consume services and products and our lives in general. A more recent phenomenon is the coworking space.
Their innovation is in the value propositions of hot desks and open spaces, all based on a flexible or short-term lease. Flexible office spaces also create a sense of community, sharing knowledge and facilitating innovation among all their members. Subsequently, coworking also affects socioeconomic, commercial and urban aspects. However, there is still little to no evidence of the economic viability of the industry and its social effects.
Studies show that the coworking industry grew from 70 people in 2007 to an average of 1.5 million worldwide in 2017, and the figure is projected to reach 5 million by 2023. There is a new wave of coworking start-up businesses such as WeWork, ImpactHub, SpaceHub, and some Indonesian coworking start-ups such as CoHive, Conclave, Kolega etc.
They are all now attempting to challenge the commercial property market and respond to the changing nature of the workplace. Coworking facilitators have taken advantage of the freelance trend and there are more venture capital fund start-ups that need renting contract flexibility. WeWork is now the largest tenant in several major big cities — London, New York, Washington DC, etc.
WeWork, which is in the spotlight today, managed to create a brand and position the company as the leader of this social and urban change. Established in 2010, by 2018, the company operated over 30 million square meters of space globally in 528 locations across 29 countries.
WeWork became famous for providing a glimpse of professional paradise for its members. They offer free cereal and coffee, ping pong, among other things — perks and facilities designed to encourage interaction.
However, WeWork came under fire recently, after drastic valuation cuts from US$47 billion to merely between $10 billion and $20 billion. The chief executive officer, Adam Neumann, has stepped down from his post and lost his majority of votes. To top it all off, WeWork delayed its initial public offering plan.
Nevertheless, we should not undermine the rapid growth and benefits of the overall coworking industry. Coworking can save companies around 20 to 40 percent in overhead costs compared to a lease for regular office space by avoiding setup costs.
This is especially true for a company aiming to expand into a new market in a short space of time. These deals are often overlooked by many; the cost benefits and financial structures are some of the significant drivers for corporations to use a coworking space.
Some Fortune 500 companies are also taking advantage of having a flexible workspace. The end goal is to get the same energy and collaboration vibe created at coworking spaces. Blue-chip companies comprise around 40 percent of WeWork members, including companies like Amazon, Airbnb, IBM, UBS, etc.
Coworking helps digital nomads with their business needs by providing an area where they can collaborate with other workers who can give business referrals and make introductions.
It provides enterprises an avenue to associate with the sharing economy opportunity. According to Accenture’s report, around 70 percent of corporate leaders believe it is essential to collaborate with start-ups and entrepreneurs to encourage innovation.
While coworking start-ups are on pace to grow dramatically, they are also facing pressure and criticism. It is due to the long rental lease they require and the shorter rent leases they allow for their members. Then, there is no significant innovation with the business model, but they operate with much higher business risks.
A company called IWG owns brands like Regus and Spaces — also providing shared office space and which has been around since 1998. A variety of firms utilize the same business model.
WeWork commits to an average of 10- to 15-year leases, but their members only invest an average of 15 months. Furthermore, WeWork’s obligation was around $47 billion, and its members only signed contracts on $3.4 billion worth of space.
Additionally, many flexible space operators burnt a lot of cash at this rate, WeWork had a loss of $1.9 billion last year.
During the economic downturn in the early 2000s, IWG filed for bankruptcy in the United States as revenues fell significantly, but long-term leases have remained in place. The big chunk of the revenue for these coworking firms comes from freelancers and start-ups. However these are the type of workers who likely will first go bankrupt in an economic crisis. Arguably, it is hard for coworking companies to withstand recession because they still must pay long-term leases.
Generally, it is easy to replicate the shared office space business model. Any business with enough cash can lease out industrial office space, remodel and lease. Hence, this is one of the many reasons why many coworking spaces are around now.
Security is an increasing concern for coworking spaces. Obviously, you cannot choose your neighbors in a communal environment. Data privacy and security are also crucial, because of the shared space and the potential threat of theft.
Moreover, working in a communal environment can be challenging, particularly when noise and activity from other members becomes too distracting. Some say the vibe of the community and the energy changes depending on the location and the tenants. Regardless of the casual culture or flexibility, it is all about business, and real tasks need to be completed. Some people in the coworking space are just there for fun.
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Senior recruitment consultant at an international recruitment consultancy firm and graduate of the University of Manchester, United Kingdom. The views expressed are her own.
