Will Co-Working Studios Survive COVID-19?
Before the Coronavirus came along, co-working spaces like WeWork offered a glimpse into the future of work life. Did the pandemic ruin all that?
This article was written by Mitchell Terpstra, a member of the Entrepreneur NEXT powered by Assemble content team. Entrepreneur NEXT is our Expert solutions division leading the future of work and skills-based economy. If you’re struggling to find, vet, and hire the right Experts for your business, Entrepreneur NEXT is a platform to help you hire the experts you need, exactly when you need them. From business to marketing, sales, design, finance, and technology, we have the top 3 percent of Experts ready to work for you.
Just one year ago, WeWork, a co-working space company, was preparing for its IPO with a staggering $47 billion valuation.
What started in 2010 with a single office in New York’s SoHo district had proliferated into a network of 848 locations spanning 32 countries and every continent except for Antarctica. Stylish interiors, sustainability-focused mindset, and perks like in-house baristas and beer, wine, or kombucha on tap attracted a range of client-members from individual freelancers to small businesses and large corporations like Amazon.
The idea, and the need, for a third work-productivity space beyond the traditional corporate office and home office was hardly new, and WeWork was not alone in catering to that need. According to some estimates, there are more than 5,000 co-working spaces in the U.S. and more than 19,000 around the world. Other major players include the Regus Corporation, Knotel Inc., Mix Pace, SimplyWork, District Cowork, Kr Space, Convene, and Premier Workspaces.
Introverts may beg to differ, but the appeal of co-working spaces is not hard to grasp. From a personal point-of-view, they provide hundreds of thousands of remote workers with a very basic need: human contact. Just being in the vicinity of other people provides a meaningful psychological boost for many. Loneliness stemming from isolation is, after all, the number-one reported complaint from people who work from home.
And then there’s the employer’s perspective: for many companies, big and small, setting up employees in co-working spaces rather than owning or leasing their own office space represents an enormous cost-savings. Plus, taking advantage of co-working studios allows companies to more easily establish hubs in key market regions, recruit talent from further away and often drastically reduce employee commute times.
From those angles, WeWork’s rapid growth and temporary $47 billion valuation almost makes sense. Then COVID-19 threw a wrench in everything.
Co-working’s present: “Essential” but almost empty.
Many businesses require a certain human-density to be profitable: restaurants, movie theaters, airlines, hotels, theme parks and cruise ships, for example. So, when the coronavirus arrived and made congregating inadvisable, these businesses were the first to struggle.
Co-working spaces were hardly different, and COVID-19 largely turned those that didn’t temporarily suspend their operations into ghost towns. While some in the U.S., like WeWork, kept their facilities open by claiming “essential business” status—even as they asked their own employees to work from home if able—a March 2020 survey of more than 14,000 co-working spaces around the world found that 72 percent had witnessed a significant drop in the number of people using their space, and 41 percent had seen memberships decrease.
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As the pandemic lingers on, many co-working studios have adjusted to the new normal by putting in place the now-familiar protocols: mandating masks, increased sanitization, social distancing guidelines, and preventing human-traffic bottlenecks by implementing one-way traffic flows. Even with these health-safety measures in place, most co-working spaces that remain in operation have seen an almost 50 percent decline in attendance.
This presents a financial predicament for a business model that is essentially a real estate subleaser. In April already, WeWork began negotiating with landlords, looking to discuss options like “rent abatements, revenue-sharing agreements, and other lease-amendments” as the company looked like it wouldn’t be able to fulfill its rent commitments.
As a whole, the co-working space market is expected to contract by 12.9 percent in 2020, according to research by Business Wire. Even as the number of remote workers has dramatically surged, the threat of infection has so far prevented co-working spaces from cashing in on this new clientele.
Does this all mean that co-working spaces as a viable business concept are doomed?
Co-working’s future: Brighter than ever.
For co-working spaces, it may very well be a case of what doesn’t kill you makes you stronger—that is, if they can first weather the pandemic-induced recession.
While some major players, like WeWork, may lack the cash reserves or optimism from investors to make it through the rest of the virus-driven downturn, some competitors, like Regus, are doubling down on investing in the co-working space markets.
Why? At some point, life will return to normal with social gatherings becoming acceptable again. (Many scientists and vaccine makers say a vaccine could be ready by late 2021.) Until then, the Coronavirus has already drastically accelerated the demand for co-working spaces by pushing so many employers to shift to a distributed workforce.
Before COVID-19, 17 percent of people worked from home full-time in the U.S. Once COVID-19 arrived, that number jumped to 44 percent. Other employees, while not working remotely full time, may be seeing their work week split between in-office and remote work as companies try to “de-densify” their workplaces.
Not only will there be more remote workers than before, some major competitors may fall by the wayside, reducing competition among co-working spaces overall. But also add to these the fact that the pandemic may cause a commercial real estate shakeup, as some companies shutter permanently and others look to shed unnecessary office space in favor a more flexible, budget-friendly format.
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