Are Coworking Spaces Profitable?

With coworking locations expected to double worldwide by 2024, the coworking industry is driving massive disruption in the business real estate space—making this the time to invest in the growing trend. In the second half of 2018, small business expansions accounted for 30 percent of new coworking space openings. This doesn't include chains: Single locations are becoming so profitable that their owners can afford to open new outposts.

Coworking spaces are looking like they're the next big thing. With sustained growth and huge interest ever since the first coworking concept opened in 2005, coworking has become a global industry that can be as viable to big chains as it is to single, self-run locations.

What is a coworking space?

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A coworking space is a shared office or building where entrepreneurs, startups, freelancers, developers, businesses, and teams meet to work independently, as well as socialize and collaborate on projects. A coworking space is not only a work office; it can be as much about networking and relaxing as it is about work.

Almost any group activity can be organized in a coworking space, so they have become popular hubs of social buzz and activity that can generate original sources of revenue. A coworking space can also be called a shared workspace or a shared office. As a specific social cell that incorporates the shared economy concept, it has become a profitable business model.

Popular revenue streams

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Because of the diverse ways people collaborate or need a location to perform short-term or long-term tasks, both in single or various locations, coworking spaces offer various revenue streams that can be turned into a source of profit for the space owner. There is a multitude of models to run a coworking space, but most include at least several options to monetize the space, the equipment, and the human resources.

A common model of generating revenue for a coworking space is when a startup signs a lease for a larger office, then takes the responsibility to organize and manage the resources while renting the free space to other interested visitors. Many coworking spaces don’t have a main lessee but are founded solely with the purpose of serving workers who, for various reasons, don’t want to bear all the costs of running an office. With this model, all office costs that a client could need in a shared office and social space could potentially become a revenue stream for the owner.

Membership fees

Depending on how much privacy and liberty the coworker has over the rented space, this source includes private offices, shared desks, or dedicated desk memberships. Membership fees can be calculated as certain portions of time—daily, monthly, quarterly or annual fees—and allow the member to use basic or more advanced amenities of the coworking space. As an owner, you can choose to provide discounts for longer memberships to reward loyalty or give group discounts to make profits from serving larger teams.

Membership packages

This is an area where you can get creative. Many shared offices choose to tailor packages that fit the needs of different average visitors, which usually include a number of coworking resources. The more the member uses, the more cost-effective the package gets. It’s convenient to have a software where the member can choose one or more of the available package options and create a personalized package by automatically calculating the costs for each selection from a list.

A membership package can include benefits and discounts with food spots, bars and clubs, gyms, outdoor activities, transportation services, and medical facilities. These all meet the needs of the members and can be easily negotiated and incorporated into different packages.

Renting amenities and equipment

While your amenities could be free, you can also choose to charge for them, especially premium ones like private audio or video call booths and individual lockers. You can also rent social spaces for discounted fees to regular members. Equipment rentals can be versatile, including telephone lines, video, and audio equipment for the conference room and printers, computers, and even cloud storage for startups that need larger data resources.

Conference rooms can be rented for typical business purposes, such as holding meetings, training staff, and video presentations, but also for social events. If possible, you should design the space to serve more than one purpose. Think of how you might transform the conference room into an educational space or a place for organizing informal social and business meetups.

How can coworking spaces make more money?

The question remains, are coworking spaces profitable? According to Spacebring, only 43% of coworking spaces are currently profitable. While that number may seem low, it is due in part to the fact that the industry is so new and is expanding at a rapid rate. With new coworking spaces opening up nearly every day, it might take them a few months to start to make a profit. But keep in mind that after two years in operation, more than 70% of all coworking spaces become profitable. If a private company owns the coworking space, then the rate is even higher.

Increase margins

One way coworking spaces can become profitable is to increase their margins. When a business first opens, there are a number of fixed and variable costs that must be paid for each month.

As the business expands, and perhaps even moves to a bigger space, the revenue from membership fees will grow, but so does rent, operating costs, and salary expenses. Because of this, even though you are making more per month, you might still only be making 10% a month in profit.

Though expansion may seem like a good opportunity for any business, the key to actually making money is to increase the margin between operating cost and the profits made on top of that. The greater the margin, the larger the profit. For coworking spaces, one way is to upsell is with high-margin complementary services. Coworking spaces can choose to put a coffee shop or small deli in the coworking space. That way, members who might have been leaving your space to grab lunch can now opt to spend their money within the building for convenience.

Vertical integration

You might also try to offer outside services at your coworking spaces. The idea of vertical integration is to try to ensure that you are taking care of every need of the member. The aim is to increase the number of transactions per member by forming strategic partnerships and acquisitions. WeWork became a master at this early on. As it acquired more companies, WeWork was able to offer every type of service from fitness to education to childcare. This method is just one way that coworking spaces can retain more customers, as well as compete within the industry more aggressively.

Attract higher-spending customers

Many coworking spaces are geared towards freelancers, who often do not have as much money to spend on monthly memberships as big companies. Many remote startups and companies still want to have space where workers can choose to work. Reach out to these types of companies to see if they would like to set up a satellite office near your coworking space, which could, in turn, increase your revenue.

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The Guide to Make Your Space More Profitable

Costs for coworking spaces

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Always design revenue-generating resources by keeping the costs in mind. If you already own the space as the main lessee, you'll need to pay the rental contract fees, and you still have to consider additional costs for regular supplies, any additional equipment you need to purchase, extended operational costs, amd extra helping hands to manage the coworking business.

Rental contracts

First and foremost, make sure that your contract has a subletting option. You must be legally allowed to let the space to other tenants. Then you can start thinking of calculating the revenues that will cover the rental costs. Check if the lease covers only the workspace or if it includes facility management and utilities. This aspect will significantly affect your other costs.

Operational costs

Operational costs encompass internet service, telephones, access control management, cleaning, electricity, and other utilities. Don’t forget to check if they come at a fixed price. If they are calculated on the basis of consumption, you need to think carefully before setting your membership fees. This process may take a bit of trial and error until you find the perfect cost-revenue balance.

Office supplies

Office essentials, toiletries, water coolers, and coffee are some of the main supplies that usually come standard in a coworking space. Assess average individual needs and include them in the cost calculation. Be clear about what you provide for free vs. what will be a paid service. Other supplies can include medium-term and long-term costs, such as office equipment, furniture, and facility management expenditure such as lights and bulbs, cabling, and office safety equipment.

Staff salaries

Staff salaries are a mandatory item in your budget breakdown. Some coworking spaces employ office managers while others let members regulate their own access and usage by implementing electronic coworking space management tools. You could also opt for a shared option of hiring a manager during busy hours while letting members manage on their own during less crowded times.

Are coworking spaces profitable?

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Since open spaces have been proven to increase productivity, the modern workforce loves them. Unquestionably, there are hundreds of ways that you can make a coworking space a profitable business model. All you need to do is to see what you have, what you can buy, and what your members will need.

Consider your location and get in touch with local suppliers to keep costs down. Anything that can make your members' working or social life easier can be incorporated into your membership package. Modern coworking spaces are about dissolving the boundaries between teams and workers and bringing them together into more flexible spaces, both in space and time, to create advanced economic models for the joint benefit of all participants.

A study by DeskMag showed that coworking spaces that have around a 5% churn rate will turn a profit. Another thing to keep in mind is that coworking spaces that have 200+ members and a higher member-to-staff ratio are more likely to succeed, showing the bigger coworking spaces are able to make a high profit from memberships, even though they may have higher fixed costs for rent and salaries.

How can I assess profits?

By using real-time reporting and analytics tools for coworking spaces, you can quickly assess which of your revenue streams bring in profits. Since it’s not simple to calculate how much a shared internet line or a discounted membership bring in over time, you can use software to add and remove different functionalities until you find the most advantageous model. It may take up to two years to cover the initial investment of a privately held shared office.

By carefully analyzing your costs and revenue, you'll be on track to becoming a profitable coworking space. Consider including imaginative revenue resources, such as referral commissions, merchandise, virtual office rentals, dedicated mailboxes, and member staff support (a model where a loyal member takes over part of the tasks for managing the coworking space) to further your space's offerings and make your coworking space successful and profitable for years to come.

The Guide to Make Your Space More Profitable

Including interviews with experts and consultants.

The Guide to Make Your Space More Profitable

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