Riding Out a Recession as a Coworking Space
The coworking model doesn’t hold up during recessions, but the hard times can be beat.
The coworking business model sounds like a dream come true: sign a long-term lease on a large property, and break it up into marked-up short-term subleases. Fundamentally, business centers and coworking spaces are middle men. At best, they provide genuine value to end users who don’t want to take on the commitment of a full lease. These users are willing to pay a premium for flexibility and community. But there’s a catch: no one pays a premium during a recession.
Taking on the risk of a long-term lease is all well and good during times of economic prosperity, but downturns result in fewer members to cover the same fixed cost. It’s a risk that coworking spaces founded in the past couple years may not have even considered, because times have been good. What happens when times are bad?
Grind, a coworking space rapidly spreading across New York City, is hedging against a potential economic downturn by striking a unique deal with its new location’s landlord. The company agreed to pay an undisclosed below-market rental rate in exchange for offering the landlord a cut of their revenues.
It might hurt to take an offer like this if you expect your coworking space to take off, but it could be the one thing keeping you in business during a downturn. Short-term profitability doesn’t mean much if you fail to exit the business before losing everything during a recession. On the flip side, companies that manage to secure a below-market rent and survive a recession will be in good position to grow their market share in the aftermath.
Negotiating with landlords isn’t the only way to survive a recession as a coworking space. What really matters is changing your perspective. Realize that members aren’t going to pay a premium for office space when they’re barely staying in business themselves.
One solution is to offer cheaper membership options with fewer perks. Instead of losing customers entirely when they look at their finances and realize they’re better off working from home, you might be able to keep them on the hook, even if only for a couple days a week.
Cheaper memberships can offer less flexible hours, meaning that you won’t have to pay office managers or security to work into the night. Also consider offering part-time desks that come with the basic necessities of wifi and coffee, but that don’t include a free pass to events like happy hour and yoga. Keep the perks for committed members, but offer casual users the ability to get work done.
During a recession, you’re not the only one in financial trouble. If you accommodate your members’ needs, they’ll be happy to stick around.
From that perspective, it’s even possible to grow your coworking space during a recession. If your value proposition aligns with people who want affordability and convenience over culture and comfort, you’ll attract refugees from competitors who only thrive when the economy is thriving. All the more reason to know your audience.