Coworking Space Demand is an Economic Indicator
Demand for coworking booms alongside economic uncertainty as laid off employees seek to supplement lost wages.
In a recent article at the Wall Street Journal, reporters found a correlation between Silicon Valley ping pong table sales and new venture capital deals. Yes, that’s right: as fewer startups get funded, there are fewer new offices to adorn with the requisite startup furnishings.
According to the chart, Q1 2016 saw the lowest number of ping pong tables sold at San Jose’s Billiard Wholesale in years. This correlates with the well-publicized decline in VC funding to kick off 2016. On the opposite end, late 2014 and early 2015 saw almost double the ping pong table sales, accompanied by activity in the tech industry.
Funny as it sounds, there’s method to the madness. Sometimes the silliest statistics can double as an economic indicator. Startups know that they need a ping pong table in the office, even if only out of self-aware obligation. Fewer offices means fewer tables.
We’ve found another statistic that could surprisingly double as an economic indicator: demand for coworking spaces. While it’s true that coworking spaces get squeezed during recessions as startups and freelancers move back to the home office, they gain new members in the form of laid off corporate employees. When workers at big businesses find themselves with less job security and fewer hours, they are more likely to take on freelance/personal projects on the side. Many of them choose to work out of coworking spaces.
Both Reuters and Gigaom argued years ago that recessions might actually be good for coworking space memberships, even if turning a profit is a challenge. Coworking spaces are tied to long-term leases that are probably above market value during a recession, but they benefit from workers who can’t depend on their day jobs for all of their income.
In a sense, demand for coworking spaces reflects economic uncertainty. If workers doubt the ability of a corporate employer to take care of them, they’re more likely to try and strike out on their own. For many, the risk and uncertainty of off-and-on freelance work isn’t an ideal career option; it’s a necessity during hard times. As a result, mass migration to part-time work havens like coworking spaces might indicate low faith in the economy.
What makes this indicator difficult to use is that coworking spaces attract both part-timers and startups. The former are more likely to show up en masse when corporate employers can’t offer them anything better, but the latter thrive precisely when the economy is doing well. Even if venture-funded startups eventually find their way into private office space, many companies start out in incubators and coworking spaces. Naturally, starting a startup requires faith in the economy for at least the next few years, because a recession will kill your growth when you can’t secure funding.
Still, trends within coworking spaces can act as a surprisingly effective economic indicator, especially if we can subcategorize the members in some way. With the slowdown of VC funding in 2016, it will be interesting to see if coworking space membership drops as a result of fewer new startups, or rises as a result of would-be startup workers going freelance.