All posts in Coworking Industry

Coworking's Unstoppable Market Growth

So, you want to Start a Coworking Space? 6 helpful strategy components to think about

The Coworking Industry is Booming!

It’s not too late to build your own coworking space. In fact, now is a better time than ever before. Before you buy a building or lease a space, though, it’s important to do your own research first. Below are some of the most popular pieces of the early stage strategy of considering whether or not to start your own coworking space.

Coworking Industry Growth links:

coworking helpful So, you want to Start a Coworking Space? 6 helpful strategy components to think about

1. Coworking Space Financial Model

Everything begins with the finances. Even though coworking began with the focus on community, ultimately these days, in order to compete and succeed in this growing market it is absolutely necessary that your space is well planned and managed from a financial perspective.

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2. Coworking Space Business Plan

What’s in a coworking space business plan? Business plan formats have been around for years, and for the most part, they are the same for coworking businesses as they are for other businesses. The reason they’re becoming more popular (and needed) these days is that it is now possible to get a small business loan (or general investment) to begin a coworking brand. In the early days, the industry was so new, you had to self-fund it personally, so it wasn’t as necessary to “prove” the plan to anyone. A coworking business plan is essential if you’re looking to share your concept with a potential investor. Chances are they are not going to be focused on the passion, but are focused on the efficacy of the plan.

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3. How to Design a Coworking Space

In the early days, this meant simply finding a space that was open and then putting some furniture in it.  Painting the walls, putting up some signs, etc. But now that financial models are tied to a plethora of private offices, it is necessary to ensure that your space has sufficient space allocation for high dollar private offices. This requires thoughtful buildout and construction plans. If you are not an architect, you will need to engage one. Fair warning- most architects do not have experience building coworking spaces, so you will need to make sure to stay actively involved in its design and planning.

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4. Coworking Space Business Model

The business model is driven by membership types (people) and resource types (space). For example, a member that is interested in hotdesking will be in an open space and will generate X amount per month. This user generally stays in the membership for Y amount of time. Building a reliable business model around hot desk users, though, is no longer financially feasible. Now that there is a huge uptick in corporate coworking memberships, the increase in private offices and team rooms in coworking spaces have skyrocketed. This is a fortunate thing for coworking space entrepreneurs as this allows the financial model to be a reliable source of consistent revenue. If you have the financial model solidified with consistent office rental, then the transient nature of freelancers and independent entrepreneurs will not destabilize your financial model.

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5. Coworking Space Calculator

Often people are looking for a quick calculation of projected revenues and expenses. For this you can hire a proper coworking consultant or you can also find quick and easy ways to calculate it yourself.

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6. Coworking Space Marketing Plan

If you build it, they will come….right? Well….it’s not so easy. Especially since financial models are based upon a lot of private office rentals. It’s necessary to focus on smart outbound marketing to the right type of user to fill up your coworking space.

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The Coworking Industry: Then, Now, and Tomorrow

Screen Shot 2016 06 20 at 8.57.08 AM The Coworking Industry: Then, Now, and Tomorrow

The OpenWork Agency has published a new coworking white paper entitled The Coworking Industry: Then, Now, and Tomorrow. (OpenWork was founded two years ago by two Conjunctured partners.) Here are some excerpts from each section of this 15 page report. If you want to read the whole thing in full, simply download the full Coworking Industry Report here.

Coworking Industry (Then):

In the early days of the coworking industry, between 2006 and 2009, coworking entrepreneurs and landlords weren’t the best of friends.  When many of us presented our business plans to property owners and managers, they looked at us with a mixture of disbelief and amusement.

The whole notion of coworking, a membership based, community oriented sub-leasing model, was way too outside of the box for them.  They couldn’t get past the month-to-month part, or the fact that there wasn’t a single-company tenant that would use the office space.  It all seemed so different and uncertain that the whole industry almost didn’t happen.

By 2009-2010 it was clear to some that coworking wasn’t a passing trend or fad.  More business-minded companies, such as NextSpace and Green Desk (which would become WeWork), entered the fray and started to commercialize the industry.  Of course, WeWork has become the giant of the industry, taking its place alongside other sharing economy unicorns with a $15B valuation.  This phase of the adoption cycle also demonstrated that coworking could be turned into a profitable business, even though many of those spaces that opened during this phase of the industry didn’t make the final cut.  Cleverly, the ones who did make the cut and managed to scale their businesses did so by bottling up many of the ‘elements of cool’ that were manifest by coworking innovators, and packaging them for sale to a new round of customers.

coworking adoption lifecycle The Coworking Industry: Then, Now, and Tomorrow

Coworking Industry (Now):

As mentioned earlier, according to our research, we have now moved into the Early Majority phase of the coworking adoption life cycle.  Due to the WeWork Effect, building owners and property managers around the world want to get involved in the industry.  We receive inquiries every week from property owners and developers who now want ‘to do coworking.’  It is interesting to note how far we’ve come from those early days when realtors wanted to have nothing to do with coworking.

There are good reasons why many of these professionals have gravitated to coworking.  Increasingly, the numbers are working out.  Coworking chains such as WeWork and Industrious, with well-designed spaces and brand cache, fill up quickly and charge a premium for their office spaces.  When you do the math you can see why they are accelerating and why others are investing in the industry.

Screen Shot 2016 06 20 at 9.06.42 AM The Coworking Industry: Then, Now, and TomorrowGranted, not that many coworking operations can earn $200 psf, but the very possibility that these businesses can be profitable has convinced many in the corporate real estate (CRE) industry that it is no longer a gamble.  Because of this, we are seeing a proliferation of new independent operators, the growth and expansion of existing multi-location players, and now a vast interest among traditional real estate companies.  Again, as was the case with the Early Adopters, some incumbents will continue to thrive while some new entrants won’t.  One aspect of this phase is clear.  At this point in the process, brands do matter.  Because it is relatively early days, there is still a significant amount of education that needs to take place before coworking is a fully mainstream phenomenon.  Offerings such as WeWork will continue to have an advantage because they are frequently written about in the press and because they are…WeWork.  Most interesting, though, is to ponder what comes next in the Late Majority phase of the cycle.

Coworking Industry (Tomorrow):

The Unbundling Corporation: Leases, Recurring Revenue, and (REIT) Dividends.

For several generations the basic mindset/model of the CRE industry has been to lock large organizations into long-term leases, which has made complete sense for quite some time.   The default setting for leasing has been that each employee in a company is assigned to a fixed work station, so you can easily calculate a certain square foot footprint per employee and come up with the amount of space a company needs.  When it enters into a lease, that recurring revenue becomes the basis on which REIT’s (because of their preferred tax status) can pay such healthy dividends.  In this equation, each employee’s square foot footprint represents a small percentage of those dividends.  Financing mechanisms for large office buildings require predictable revenues and cost structures, so the whole process becomes frozen in place.  And thus, at this point in time, for the most part CRE sees coworking as coworking operators who are now capable of paying their rent.  They still, for the most part, don’t see, or don’t want to see, the future.

What is missing from this perspective is that what we call coworking is no longer just about Millennials, freelancers, startups, and small teams.  Large firms, themselves, are unbundling, and migrating to flex-work solutions, address-less offices, Activity Based Work, and other processes that are accomplishing three powerful things simultaneously:

  1. Radical reduction of real estate footprints (and costs)
  2. Radical improvement in the quality of workspaces for the spaces that remain
  3. Dramatic increases in choice and flexibility for knowledge workers

The implications for CRE are profound.

Turnkey Coworking? When Coworking Becomes Work and Work Becomes Coworking

As we are seeing it, the next phase of the cycle looks like this. Slowly, floor by floor, building owners will, via new turnkey coworking solutions, convert their properties from being occupied by fixed, large tenants who need and want massive footprints (which they decreasingly do), to open, agnostic, membership-based, multi-company campuses that are used (and paid for) on a month to month basis. New, robust software platforms- building operating systems will manage all of this. As we have already seen in the case of WeWork, when a place is designed in a certain way, and also has a sufficient amount of social atmosphere, a thriving ‘coworking space’ can actually out earn the standard lease rate of many buildings. In presenting coworking directly to their corporate clients (effectively bypassing the middlemen), certain functions and costs arise. Buildings will need concierge and community management services, but this can be paid for out of the revenue that otherwise would go to a coworking operator. As it is anyway, property managers spend much of their time showing prospective tenants around buildings, much of which will be unnecessary activity in the future. These professionals can easily be (re)trained to run such enterprise-focused coworking spaces. Furthermore, and most importantly, not only can buildings earn more money by going direct to their customers, these are the very spaces that customers are increasingly demanding. Not only is this demand already being expressed, in a few short years Millennials will be the largest generation at work and they are clearly expressing a desire to work in a manner consistent with other aspects of the sharing economy.

Download the full 15 page PDF here: Coworking Industry 2016 report by OpenWork.

Background

CONJUNCTURED 

Conjunctured was the first coworking space in Austin, Texas and is one of the oldest and most established coworking brands in the world. Today, there are 44 coworking spaces in Austin and over 10,000 spaces across the world. The partners of Conjunctured have been speakers at a number of global conferences related to innovation, coworking, and workplace strategy. In September 2014, after six years of coworking, the Conjunctured house closed its doors. Following its closure, in an effort to open the ‘coworking model’ into greater society, Conjunctured partners, Drew and David, launched a hybrid consultancy called The OpenWork Agency.

THE OPENWORK AGENCY 

OpenWork Agency is a boutique coworking consultancy. All of the partners and consultants in the firm are either current or former coworking operators, and we have (combined) over thirty years of coworking operating experience in the team. We also have a Harvard educated architect, as well as the world’s leading community manager training expert. Recently, in Kisi’s list of the ’30 Most Influential People in Coworking,’ five members of OpenWork’s team made the list. We have expertise in all aspects of the industry, and regularly work across the entire value chain. We formed to help others- real estate investors/developers and companies- understand, strategize, and implement coworking solutions in their own buildings and companies. This includes educating clients in the specifics of the industry, and helping others develop their own brands as a white label service.