Coworking spaces have soared in popularity in recent times. From freelancers to startups and established corporations, they provide a shared location for workers to meet, collaborate and rent a desk or office on a flexible basis.
There are now more than 14,000 coworking spaces worldwide and research reveals shared workspaces have grown by 200% over the last five years. This data might suggest that opening a coworking space is a sensible business move. After all, there is clear demand and more than five million people are predicted to use some 30,432 coworking spaces by the year 2022.
However, research reveals that only 40% of coworking spaces are profitable, although this proportion has increased over the last four years. Part of the reason for this is that coworking is a relatively new market with nearly one-third of spaces opening in the last 12 months, and most startups take some time to turn a profit.
The secret to a healthy bottom line can often depend on economies of scale, as some 75% of coworking spaces with 200 members or more are in the black, according to figures from the 2017 Global Coworking Survey.
While this is all well and good, how much does it actually cost to set up and run a coworking space? Let’s break the figures down now:
Finding a space
Unless you own some vacant commercial property, then it will probably be necessary to buy or rent some real estate in order to open a coworking space. Even at this early stage, it’s vital to understand what you require in terms of the layout, location, and amenities.
Naturally, the cost of real estate ultimately depends on the size and location of your setup. A good rule of thumb is to plan for approximately 100 square feet of floor space per member, but if you want to integrate more private offices and meeting rooms into the space, you’ll need to be willing to invest more. Alternatively, if you’re going to focus mainly on hot-desking and desk rentals, it’s possible to spend a little less per square foot.
Research reveals the cost of office space fluctuates dramatically depending on the location. For $5,000 per month, you can get 2,861 square feet of office space in Atlanta, 2,599 square feet in Dallas or 2,117 square feet in Houston. However, in New York City you’ll only get 811 square feet of space, in San Francisco you’ll get 921 square feet and in Washington, D.C., you’ll get 1,140 square feet of office space.
Fitting out the space
The next step is to deck out the space with all the furnishings, always bearing in mind the needs of your prospective community.
In terms of design, there are many different office layouts to choose from, but the majority of coworking spaces offer members a shared space with hot desks or rent dedicated desks, private offices, and meeting rooms.
When it comes to furniture, some spaces take a low-budget approach while others spend more on luxuries such as real wood and higher quality chairs and couches. The best option really depends on the target audience and the size of their wallets.
Breakout areas and other shared spaces are also popular options and it may be worth including some unconventional working environments in order to attract millennials.
Developing a certain theme or look can set your space apart. For example, The Farm Soho is decked out in timber from an old barn in southern Missouri and the U.K.’s Huckletree coworking group stamps distinctive black and white stripes on its locations to build a consistent brand.
A super-reliable wifi network is essential since poor connectivity is the number one turnoff for coworking members. Other major expenses could include a reception area, a kitchen, and the relevant insurance policies.
This post reveals a breakdown of costs to set up a 1,800 square-foot coworking space in Philadelphia back in 2012: $6,000 for rent (this includes the first and last monthly payments and a security deposit); $2,000 for 20 desks and chairs from IKEA; $150 for a wireless router; $500 for a one-year insurance policy; and $300 for miscellaneous things like trash cans and bags, cleaning supplies, etc.
While this is a relatively small space both in terms of its footprint and its capacity of 20 people, it should give a rough approximation of the breakdown of costs.
Managing the space
Operating and managing a coworking space also entails several monthly fixed and variable costs including:
- Rent (or mortgage);
- Staff (for example, a community manager or receptionist);
- Electricity, heating, water and other utilities;
- Internet and other amenities;
- Cleaning services;
- Management software;
- Office supplies, and other miscellaneous costs.
The 1,800 square-foot coworking space in Philadelphia we mentioned earlier incurred total monthly operating costs in the region of $3,600.
Further studies reveal a 6,800 square-foot coworking space could cost more than $20,760 per month to run, broken down as follows:
- Rent – $14,170;
- Labor – $3,330;
- Marketing – $460;
- Amenities – $1,020;
- Utilities – $640;
- Misc – $1,140.
A maximum potential monthly revenue of $42,550 would allow for a healthy monthly profit of $21,790.
However, a more realistic monthly revenue for this coworking space after one year is $32,700, giving you a monthly profit of $11,940.
If you want to set up a coworking space, you don’t have to go it alone. A Space-as-a-Service provider enables you to outsource the setup and management of a coworking space.
There are a handful of partners to choose from. You could opt to lease out your space to the likes of a dominant industry player like WeWork. They will then create a coworking space that has a footprint of around 25,000 to 40,000 square feet, usually in its cookie-cutter design and branding.
If you’d like something a little more tailored to your needs, consider a more flexible Space-as-a-Service business. For example, Bold can help a building owner set up a coworking space of around 5,000 to 15,000 square feet and offers a design portfolio with several options.
Whatever you decide, it’s important to not get carried away in with the current coworking craze. To generate a steady income, it takes investment, careful research and time to grow a community and make a coworking space profitable.