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Will co-working studios survive COVID-19?

September
30, 2020

5 min read

The opinions expressed by the entrepreneur's contributors are their own.

This article was written by Mitchell Terpstra, a member of Entrepreneur NEXT supported by the Assemble Content team. Entrepreneur NEXT is our Expert Solutions division that leads the future of the work and skills-based economy. If you're struggling to find, review, and hire the right experts for your business, Entrepreneur NEXT is a platform that allows you to hire the experts you need, exactly when you need them. From business to marketing, sales, design, finance to technology, we have the top three experts ready to work for you.

Just a year ago, WeWork, a collaborating aerospace company, was preparing to go public with an astonishing $ 47 billion valuation.

What began in 2010 with a single office in the SoHo district of New York had developed into a network of 848 locations in 32 countries and all continents with the exception of Antarctica. Stylish interiors, a sustainability mindset and perks like in-house baristas and beer, wine or kombucha on tap drew a range of customer members, from individual freelancers to small businesses and large corporations like Amazon.

The idea and need for a third area of ​​labor productivity beyond traditional corporate headquarters and the home office was hardly new, and WeWork was not alone in meeting that need. It is estimated that there are more than 5,000 co-working spaces in the US and more than 19,000 worldwide. Other key players are Regus Corporation, Knotel Inc., Mix Pace, SimplyWork, District Cowork, Kr Space, Convene and Premier Workspaces.

Introverts may differ, but the appeal of workspaces isn't hard to grasp. From a personal point of view, they provide a very basic need for hundreds of thousands of remote workers: human contact. Just being around other people means a significant psychological boost for many. After all, loneliness due to isolation is the most common complaint from people who work from home.

And then there is the employer's perspective: for many large and small companies, setting up employees in common rooms instead of owning or renting their own office space means enormous cost savings. By using co-working studios, companies can also more easily set up hubs in key market regions, recruit talent from regions further away and often drastically reduce employee commuting times.

With that in mind, WeWork's rapid growth and $ 47 billion temporary valuation makes almost sense. Then COVID-19 threw a wrench into everything.

Presence of cooperation: "Essential", but almost empty.

Many companies require a certain density of people to be profitable: for example restaurants, cinemas, airlines, hotels, theme parks and cruise ships. When the coronavirus hit and made the gathering no longer advisable, these companies were the first to have problems.

Co-working spaces were little different, and COVID-19 largely turned those who hadn't temporarily ceased operations into ghost towns. While some in the US, like WeWork, kept their facilities open by claiming "essential business" status – even encouraging their own employees to work from home when possible – in March 2020 Surveyed more than 14,000 co-working spaces around the world found that 72 percent saw a significant decrease in the number of people using their space and 41 percent saw a decrease in memberships.

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As the pandemic continues, many collaborating studios have adapted to the new normal by adopting the now familiar protocols: mandating masks, increased disinfection, social distancing guidelines, and preventing bottlenecks in human traffic by implementing one-way traffic flows . Even with these health and safety measures, most of the work areas that are still in operation have seen a drop in visitor numbers of almost 50 percent.

This presents a financial situation for a business model that is essentially a real estate subtenant. Back in April, WeWork began negotiating with landlords to discuss options such as "rent reductions, revenue sharing agreements and other lease changes" because the company appeared to be unable to meet its rental obligations.

According to a study by Business Wire, the market for cooperating spaces is expected to shrink by 12.9 percent in 2020. Although the number of remote employees has increased dramatically, the risk of infection has so far prevented co-working spaces from benefiting from this new clientele.

Does all this mean that co-working spaces are doomed to fail as a viable business concept?

The future of collaboration: brighter than ever.

With cooperative spaces, what doesn't kill you may well make you stronger – that is, if they can weather the pandemic-induced recession first.

While some key players like WeWork may lack the cash reserves or investor optimism to weather the rest of the virus-induced downturn, some competitors like Regus are doubling their investments in cooperative space markets.

Why? At some point life will return to normal and social gatherings will become acceptable again. (Many scientists and vaccine manufacturers say a vaccine could be ready by the end of 2021.) By then, the coronavirus has already dramatically accelerated job demand by pushing so many employers to move to a dispersed workforce.

Prior to COVID-19, 17 percent of people in the United States were working full-time from home. When COVID-19 hit, that number rose to 44 percent. For other employees who do not work full-time, the workweek may be split between in-office and remote work as companies try to “detach” their workplaces.

Not only will there be more remote workers than before, but some key competitors could fall by the wayside, reducing overall competition between work areas. Add to this the fact that the pandemic can shake commercial real estate as some businesses close permanently and others seek to cut unnecessary office space in favor of a more flexible, budget-friendly format.

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