Will Coworking Spaces Still Thrive When They’re Mainstream?
What does the future of Coworking hold?
Coworking giants like the $10 billion-valued WeWork offer a product that’s hard to argue with. With the tech industry as vibrant as it is, demand for temporary office space is surging, and who wouldn’t want an office that made them look forward to going to work? Evidently, investors agree with this value proposition, and companies like WeWork command an impressive influence on the office space industry.
But real estate experts are skeptical. A major issue is that coworking space providers rarely own their own properties; WeWork, for instance, operates on long-term (10+ year) fixed leases. While they might be able to turn a profit in today’s market, the ever-present fears of a tech bubble prove to be problematic. What would happen if the economy slowed down while WeWork’s leases remained the same?
If venture capital funding dries up, demand for flashy office spaces is bound to fall with it, as aspiring entrepreneurs are forced to pinch pennies where they can. It’s hard to imagine from where we stand today, but it’s an important question to ask for investors looking at the coworking industry’s long-term prospects. Even in the best case scenario, the fact that these providers don’t own property puts them at the mercy of landlords, and re-negotiating leases in ten years’ time might very well spell trouble.
There’s a cultural element to this issue as well. It isn’t merely a question of whether VC funding will completely dry up and the bubble will burst—on a much smaller scale, it’s possible that entrepreneurs in the next five or ten years will voluntarily choose to return to the home office and shy away from the attractive, but ultimately unnecessary, amenities that coworking spaces offer. A small economic change might prompt a larger cultural shift. If that happens, coworking space providers will have to be prepared to target demographics outside of the young entrepreneurs that they’re currently associated with.
On the flip side, what would happen if coworking spaces continued to grow, and they became an established part of the status quo rather than up-and-coming challengers? Even if this would be good news for the companies in question, becoming part of the status quo means that there’s less likely to be a culture fit between tenants. The demographics that use coworking spaces will grow wider and wider, hampering one of the main benefits that these spaces currently offer: the opportunity to work side-by-side with like-minded peers.
Having said that, it is unlikely that coworking providers will fail. For one, they have resources: this article states that WeWork’s lowest profit margin is around 40%, while its highest is nearly 70%. Cash like this is hard to argue with. Even if they run into trouble with landlords a decade down the line, there’s little stopping them from investing in property of their own, or expanding to regions where margins are likely to be higher. The ability to expand freely gives them enough wiggle room to counter any threat that market conditions might throw at them.
The second factor is cultural: coworking spaces offer a curated working experience. As of now, a large part of their value proposition is that, in contrast with your local cafe, you’ll have the opportunity to be surrounded by talented entrepreneurs as you work on your next big project. Though intangible, this is a benefit that companies are unlikely to cut just because money is tight. It’s a deeper value than high-end amenities and convenience.
Currently, companies like WeWork are associated with the startup ethos—vibrant spaces, ambitious people, and an insistence that hard work and passion go hand-in-hand. But as these companies grow, their brand image will change. As curation becomes increasingly difficult, it seems inevitable that, while their association with newness wears off, they’ll have to find ways to bring in tenants outside of the traditional tech startup crowd, who may have already moved on to the next big disruptor.