In the latest Bayfield Training Webinar, Sonia Martin-Gutierrez and Andri Rabetanety present: An Introduction to Co-Working Spaces. In this webinar, Andri introduces what defines a co-working space and its relationship to Real Estate as a Service. The need for greater flexibility in office space usage and the evolution of the shared economy have changed the paradigms of the real estate office asset class and given rise to the co-working concept. The webinar equips you with the knowledge and tools to assess the business model and the profitability of co-working spaces.

What is Co-Working

Co-working and flexible workplace are terms used interchangeably; however, they represent two ends of a spectrum. On the one hand, flexible workplace is tech-enabled amenitized space with access to hospitality. Conversely, on the lower and more commoditised end, is the co-working space. Andri describes co-working as an arrangement in which several workers from different companies share an office space. As Andri explains, co-working spaces allow for cost savings and convenience through the use of common infrastructure, such as equipment, utilities, and custodial services.

From a traditional real estate perspective, the innovation of co-working spaces is two-front. On the economic side, you have the effects that a traditional real estate lease and its related costs impose on a company’s profit. On the people side, you have an environment that is used to attract talent, foster creativity, and enhance collaboration, to drive a sense of belonging to a community. Andri stresses that the community factor is essential—it is a variable that is emphasized in the strategic purpose of several big players in the co-working space. Several factors that categorise co-working spaces include the target group (general or niche), level of community access (inclusive/exclusive), events, and size of space.

Co-working spaces have produced several changes to traditional real estate. Firstly, real estate is no longer seen as a product (i.e., the ownership of space), but now also as a service. Secondly, in traditional real estate, the tenant is viewed as a client. In co-working spaces, the tenant is a guest, and the landlord has transitioned to be a brand, which promises a better guest experience. Co-working reflects the evolution of real estate towards greater flexibility in the workspace, shared economy, and the emphasis on the experience. As Andri articulates, these aspects are primarily the reason why co-working spaces initially appealed to freelancers, entrepreneurs and remote workers seeking a community experience.

Business Models

The business model of co-working spaces started from a simple strategy—letting large spaces on long-term contracts at a discount and sub-letting the spaces to multiple tenants at a premium. Andri illustrates this using the example of a residential apartment. Specifically, an individual can make a profit by letting an apartment property on a yearly basis, and after that, this individual can sub-let each room for short-term visits.

Next, Andri provides viewers with the tools to evaluate the performance of a co-working space. Specifically, Andri applies a hospitality sector performance measuring model to a co-working office space. For example, in the hospitality sector, the performance analysis of the operation uses an operation unit (i.e. the hotel room). Other performance indicators include the occupancy rate, the average daily rate (ADR), and revenue per available room. These indicators can be transposed to measure the performance of a co-working office space. For example, in the same way that the hospitality sector’s operational unit is the hotel room, it becomes the workstation/work desk in the co-working space. The key performance indicators remain similar (i.e., ADR, occupancy rate, and revenue per desk).

Furthermore, Andri explains that co-working has challenged larger operations to re-think their leasing model. The three models that have emerged are the flex and core, the hub and spoke, and the incubator. The flex and core model refers to a company’s core/primary office space, whilst including some availability for flexible workspace. The hub and spoke revolves around having one headquarter in one location and several lending spots in strategic cities with flexible workspace. In contrast, incubator space is there to generate entrepreneurship where employees would benefit from interaction with outsiders.

Current Utilisation of Co-Working?

The adoption of co-working spaces remains relatively small in Europe, accounting for approximately 1.5% of the total office space across Europe. Nonetheless, in the past decade co-working has experienced substantial growth—from 2014 to 2018, the number of operators in Europe grew more than 205%. The two major players that dominate co-working spaces in Europe are IWG and WeWork. London reached the highest share of co-working space out of the total share of office space, with 5.1% occupied by flexible workspace. WeWork is the largest private-sector occupier in London, with roughly 270,000 square metres.


Special Case: WeWork

Next, Andri uses the case study of WeWork, evaluating the company’s development, achievements, and challengesAndri describes how WeWork started in 2010 as a provider of shared office space, and gradually transitioned to become a community builder, with a collection of community building brands (e.g. WeWork, WeLive, WeGrow) that encompass the co-working, co-living and classroom segments.

In 2018, WeWork reported revenue of $1.8 billion and over 400,000 members across 425 locations worldwide. At the time, the occupancy rate was approximately 84% and the business was valued at $47 billion. However, the company was not without its troubles. In the same year, WeWork reported a net loss of roughly $1.9 billion. Andri explains that this is because the start-up was still financing its growth with high fit out costs and fixed costs.

In August 2019, WeWork filed IPO paperwork and the financial information they disclosed raised concern about its cost of growth, management style and, most importantly, the path to profitability. Eventually, the IPO was cancelled, its founder and CEO Adam Neumann stepped down, and WeWork’s valuation fell to $2.9 billion.

Andri concluded by explaining that co-working is a movement that has changed the organisation of space and raised the bar in the service provided to tenants in the real estate sector, including customer amenities, leasing speed and the ease of the leasing process. Andri contends that the penetration of co-working will continue to grow, but it will require a blend of new entrants from the hospitality world to reach saturation. Recent evidence from HotelNewsNow reveals that some hotel rooms during the COVID-19 lockdown have been used as a workplace location. Thus, the lines between hotels and offices are blurring, which is likely to be for the benefit of the tenant experience.


Khathu N
ematswerani, Research Intern