Years ago, the concept of sharing office space with people who were not employed by the same company seemed a little odd. Organisations had their own physical offices and if you were self-employed you either rented office space or worked from home. Fast-forward a few years and there has been extensive research into how people can work more effectively if given the opportunity to collaborate with other individuals, and since then there has been an evolution in the way in which people work.
With the rise in property prices, renting commercial office space has become more and more expensive and competition for prime real estate gets tougher. Contractors, entrepreneurs and small/medium enterprises have a difficult time battling with larger businesses for office space, which is where co-working space comes in, as entrepreneurs can often rent them on a flexible basis, something which they are less likely to find in traditional commercial lets.
So who is the target audience for co-working space?
There are an estimated 1.91 million freelancers in the UK, or 6% of the whole UK workforce. Although that may not sound like a significant proportion, according to recent studies that figure is set to skyrocket to 50% by 2020. Furthermore, it is not just freelancers who are taking advantage of co-working space; larger organisations such as KPMG are also seeing the benefit in terms of helping them “keep their ear to the ground” and keep up with new developments and ideas. Lloyd’s Bank has also announced that it allows 30% of its employees to work flexibly. Not only does this allow employees to enjoy a better work/life balance, it also reduces the bank’s overheads and thus increases the requirement for co-working spaces.
The benefits of co-working space
As mentioned earlier, co-working spaces allow entrepreneurs and freelancers the opportunity to work in a professional environment with flexible terms and without the worry of having to pay extortionate rates for office space. The benefit of renting co-working space goes beyond monetary savings and co-working spaces in general offer so much more than just a desk and internet connection. Many offer educational programmes, private conference rooms, sports classes and an unlimited supply of refreshments.
Co-working office spaces are open to anyone, and attracts freelancers and entrepreneurs from all fields and walks of life. Being within such proximity of a wide range of professionals can be hugely advantageous. The benefit of making mutually beneficial connections with other professionals from within your field and beyond is incomparable, and is one of the main appeals of co-working space.
The future of co-working spaces
In co-working space a good investment? The dramatic rise in popularity of co-working spaces has been driven by the increase the number of contractors and start-up companies seeking low cost office rents will no long term contracts. Co-working spaces are constantly evolving; perhaps one time, 10 years ago, it meant sitting at a large communal table in Starbucks and taking advantage of their free Wi-Fi. Now it means a space where people have access to health and wellbeing classes, and can take courses that will help them along with their career. It seems that co-working spaces will not only provide the need to help one perform their job to a high standard, but it will also provide individuals with the means to enhance their life outside of their professional career. Co-working spaces will encapsulate all aspects of living, not just working.
More and more profitable co-working companies are looking to expand. According to the Global Coworking Survey, in 2014 66% of profitable co-working spaces in the UK planned to expand, and this percentage has shot up in 2016 to 78%. It helps that more and more people are using the co-working spaces, and therefore this drives up the profitability. In fact, membership of an average co-working club has increased by almost 50% in two years.
How to invest in co-working space?
Companies like We Work started in 2008 with personal loans from the founders. As the business grew, private equity venture capitalists provided further funding. Later stage investors included investment banks such as Goldmans and JP Morgan.
New companies such as Bar Works and Our Space have set their sights on opening many co-working locations with the help of private investors. There is an opportunity for early stage investors to take ownership of workspace within the new establishments. The operators, like Bar Works, will lease the space back from the investors and pay them a healthy return of 14%. Co-working space certainly sounds like a good investment.
Bar Works is planning on opening a new co-working space in Brooklyn, NYC, after having previously championed Manhattan where they currently operate five co-working spaces. They have pinpointed Brooklyn and in particular the location of Williamsburg for their next co-working space, because of the sheer economic growth in the Borough, of which Williamsburg is the main driving force. Investors have the opportunity to purchase a Bar Works coworking space for $25,000 on a ten-year lease with the option to have the space bought back from them from year two for 125%. Net rentals of 14% and beyond are achievable, and there is no requirement for maintenance, which means it is a completely “hands-off” investment.
In the UK the co-working environment seems to be even more buoyant, with larger spaces and more members per space. Our Space is relatively new to the industry but have ambitious plans to open co-working space in Birmingham, Dubai, Miami and New York. Our Space coworking spaces in Birmingham come with a five-year lease and a buy back option of 120% of the original price. Our Space picked Birmingham as their first location for co-working space in the UK due to its advancing economic situation. The construction of HS2 will more easily connect it with the rest of the UK and cheaper housing compared to other UK cities such as London and much of the South East means more people will consider living in Birmingham, and the rising population will in turn mean more workers looking for office space.
Is the growth sustainable?
The need for co-working spaces is rising, but also, the sector is exceptionally good at retaining existing members, proving consistent demand. According to the Global Coworking Survey, 80% of members are planning to renew their membership for the next year, and two thirds have not even considered leaving which is a slight increase on last year. Co-working spaces do especially well in large cities and new data has shown that although one in five spaces have moved at least once, but half of them did so simply because their former spaces were too small, and only 7% of spaces moved because of high rents.
The rise in the number of freelancers, and existing users’ reticence at the idea of ending their membership and the concept’s popularity in large cities means that the demand for co-working spaces is sustainable. It is an innovation in the way in which people work, and in the future we will see more and more people swap the office and coffee shops for co-working venues.
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