Are Coworking Spaces Profitable?
With over 1,000 coworking locations opening yearly just in the U.S., the coworking industry is driving a 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—that means that 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?
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 is also 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
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 and 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; therefore, all office costs that a client could need in a shared office and social space could potentially become a revenue stream for the owner.
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 that 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 of serving larger teams.
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 the coworking resources. The more the member uses, the more cost-effective the package gets. It’s convenient to have 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 of the members and can be easily negotiated and incorporated into different packages.
Renting Amenities and Equipment
While your amenities can be free, you can also choose to charge for them, especially premium ones like private audio or video call cabins 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, 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 transforming 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 a survey completed by DeskMag, only 40% 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. 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.
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 the space pays 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 the rent, operating costs, and salary expenses. 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 problem to have 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 with high-margin complementary services. Coworking spaces can choose to put a coffee shop or small deli in the coworking space. Members, who might have been leaving your space to grab lunch, will now opt to spend their money within the building due to the convenience.
You might try to offer outside services at the 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 has become a master at this. As it acquires more companies, WeWork plans on offering 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
While coworking spaces are geared towards freelancers, they often do not have as much money to spend on monthly memberships as big companies. Many remote startups and companies still want to have a space where workers can choose to work. You can reach out to these types of companies to see if they would like to set up a satellite officer near your coworking space.
Costs for Coworking Spaces
Always design revenue-generating resources by keeping the costs in mind. Even if you already own the space, as the main lessee, and need to pay the rental contract fees, you still have to consider additional costs for regular supplies, any additional equipment you need to purchase, extended operational costs, as well as extra helping hands to manage the coworking business.
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, because this aspect will significantly affect your other costs.
Operational costs encompass internet rental, 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 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 what will be a paid service. Other supplies can include medium-term and long-term costs, such as office equipment, furniture, facility management expenditure, such as lights and bulbs, cabling, and office safety equipment.
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 can go 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?
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 their working or social life easier can be incorporated into the membership package. Modern coworking spaces are about dissolving the boundaries between teams and workers, bringing them together into more flexible spaces, both in space and time, to create advanced economic models to the joint benefit of all participants.
The study by DeskMag also showed that 70% of all privately owned coworking spaces that have 50 or more members will turn a profit. Only one in five will end up with a loss. Coworking spaces that have just 10-49 members are the ones that are most likely to close at around 40%. Therefore, the bigger coworking spaces are able to get a high piece profit from the memberships, even though it has higher fixed costs like 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 the 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 the 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.
If you include imaginative revenue resources, such as referral commissions, merchandise, virtual office rentals, dedicated mailboxes, and member staff support, which is a model where a loyal member takes over part of the tasks for managing the coworking space, you will be able to become part of the 87 percent of profitable coworking spaces, which speaks in favor of choosing a coworking space as a business model.