The End of Coworking?
By Alex Molokwu
Are we witnessing the end of coworking or is there a future for coworking locations?
Prior to the pandemic, co-working spaces were the fastest-growing type of office space in commercial real estate. While they currently comprise less than 5% of the market, they’re expected to make up 30% by 2030, according to real-estate company JLL.
Coworking business models will need to adapt, and the post-Covid market may look different. Tom Carroll, JLL’s executive director of EMEA research and strategy, has been tracking the dramatic rise of coworking and flexible space over the last decade: ‘In the short term, there’s quite a lot of pressure on that sector as lockdown has had a very tangible and real impact on occupancy within open coworking and shared space,’ he says. ‘That’s going to put pressure on some operators, and we expect consolidation and some shifts as that shakes out.’
Flexible offices account for about 15.1 million square feet – or 5.5 per cent – of London’s office stock, according to commercial property agency Cushman & Wakefield. Pure coworking for individuals or small groups hotdesking with short rolling leases accounts for just seven per cent of the UK’s flexible office space, figures from the Instant Group show. The rest are self-contained or hybrid offices for businesses, typically with longer lease lengths. At WeWork, for example, corporate ‘Enterprise’ clients – businesses with 500 or more employees – accounted for 40 per cent of all memberships as of 2019, while individual offices comprise more than 80 per cent of its space.
Smaller tenants are getting annoyed: WeWork and other operators like IWG offer a service where everything is included in a fixed price – and they’re still paying for it. “They’re demanding you pay full rent for a skeleton service where even their employees aren’t there,” says Simon Alexander Ong, a user of IWG’s luxury Clubhouse brand, where a personal membership is as much as £450 a month at a time when members sit at home, sans complimentary refreshments. Like Anna, he was eventually offered 50 per cent off rent in May and June if he extends his membership, but he suspects his time with IWG is coming to an end.
As networking moves online, some experts worry a digital networking divide could result in a gap between the types of workers who get face time to build their professional circle. “Are in-person gatherings going to be reserved for people we really want to see, and expanding networks is reserved for things we do online?” says Lakshmi Rengarajan, a workplace connection consultant formerly of WeWork and Match.com.
Naj Austin closed the doors to Ethel’s Club, a professional and creative community space designed for people of colour, in early March. Within four days, however, she and her team launched a digital membership model “to keep connection and community alive.” The club, which had 300 members for its Brooklyn location, added another 400 creatives and professionals around the world to its base.
Now, the pandemic and subsequent lockdown has left the company with large amounts of empty space and hundreds of furloughed employees. Last month WeWork — the largest single occupier of corporate office space in London — cut over 50% of its community managers and community leads in the UK, according to sources within the firm.
WeWork’s downfall is unsurprising, considering the difficulties within the business prior to COVID-19. But as working from home and social distancing have become the new normal in just a few months, the idea of sharing office space is looking increasingly unappealing. Whether coworking companies manage to survive the current crisis remains to be seen.
According to a survey of more than 14,000 coworking spaces across 172 countries by coworking marketplace website Coworker, 72% said they had seen a decrease in the number of people working from their space since the outbreak.
Along with fewer people working in their workplaces, 41% of coworking spaces reported a negative impact on membership and contract renewals since the outbreak. A further 67% of spaces have experienced a drop in the number of new membership enquiries.
It’s clearly a challenging time for coworking businesses, which are characterised by shared areas which see huge numbers of people come and go. However, this doesn’t necessarily mean they won’t exist in the future.
We have seen a drop in enquiries for office space by 67%. Our coworking venue providers have seen a drop in business by roughly 50%.