We’re barely past the perfect storm for the coworking and flex space industry and already heading into most likely the biggest recession of our times. With traces of inflation, spiking interest rates, and low office occupancy, what’s the future of Coworking looking like in 2023?
It’s looking great but difficult! Let’s explore the opportunities, the challenges, and the strategies that can help you get through these turbulent times stronger than ever!
Demand for Coworking and Flex is on the Rise
There are a lot of data points and reports that clearly show that demand for coworking and flex spaces is on the rise. Historically, serviced offices have always been doing better in recessions because companies need more flexibility in difficult times. Now, if we put the post-covid desire for greater flexibility, companies of all sizes have even more reasons to seriously consider flex. In fact, flex is becoming a key workplace strategy for many multinationals around the globe.
What can you do to capture that demand?
- Product & Positioning – make sure that your workspace products are secure, compliant, and reliable! You can’t afford to have shaky internet connectivity or your access control systems are not in place. Also, make sure all your marketing collateral clearly points out that you’re enterprise-ready!
- Follow the Demand – oftentimes, larger companies will come through partners, like an office broker, an online broker, or a marketplace network. Make sure you establish and nurture these partnerships sooner rather than later!
Landlords are becoming a Coworking Key Growth Driver
In many regions around the world, we see that demand for flex actually exceeds the supply. There’s a clear opportunity for growth in the coworking and flex space industry. Also, there’s a very interesting party that’s hugely interested in our industry for many reasons – the Landlords, short for Property Management companies and Asset Owners.
Our internal data analysis shows that more than 55% of all new coworking locations that came to market in 2022 are driven one way or another by a Landlord. It’s not surprising though. In fact, we expect this number to get even closer to 80% in 2023. Here’s why it’s a win-win for all parties:
- Landlords have available space assets that they can put to good work in flex. In fact, it’s unclear if they can put them into the traditional office market anyway. Or anything else but flex!
- Landlords have financial assets and the construction partners to do the fit-out of the space more effectively.
- Coworking Operators have the brands and the operational capabilities to pull out a successful flex offering.
- Coworking Operators have the growth mindset and abilities to drive demand for flex.
It’s a match made in heaven. We’re seeing massively successful landlord-operator partnerships lately.
If you’re not building these relationships with the top Landlords in your regions, you’re missing a big opportunity here!
Profitability is more Important than Ever
Profitability is sexy again! In fact, it’ll be the most important element of a coworking business in 2023. Or, well, any business. A dollar today is better than a dollar tomorrow. The interest rates will be growing slowly and steadily for many months. Risk-free government bonds will yield 5-5.5% and almost risk-free corporate bonds are at 8-9%. You need to beat that in order to be an investible business and that’s not easy if you’re not profitable. You need to be growing nicely and also turning a profit in 2023!
Most recessions recede in 18 months, however, no one knows for how long we will be in this one. Our advice is to buckle up and optimize for efficient growth and profitability. Put your EBITDA hat on and go after these optimizations.
Less > More
Less is more! That’s a universal truth but in challenging times, it resonates even better. Our advice for 2023 is to stay focused on your key offerings, make them 10x better and reduce distractions. For example, the two big distractions we’re often seeing in our industry are:
- Offering way too many product and service variations. Optionality is good but it also creates an enormous management overhead and distraction from the key growth drivers. Make your core products 10x better instead of offering hundreds of options.
- Building internal tech solutions. That one is specifically painful as it’s not just a huge operational overhead, a distraction, but also a financial rabbit hole. Let’s zoom into it.
Let’s imagine you want to build your tech stack from the ground up. In order to do that, you need the following team: 10 developers, 2 QAs, 4 tech support, and 2 PMs. The total cost of running such a team is in the range of $1.5m to $2m per year. You can potentially do it with half this team but it’ll be very difficult to make any meaningful progress. The simple math also tells us that you need to run more than 400 locations to justify a cost of $1.5m / year ($300 per location per month). The good news is that you don’t need sales and marketing as traditional software companies do. You don’t need to spend a ton of money on customer acquisition as all your new locations will ‘buy’ your product. Which is great! Or is it?
If you are somewhat familiar with how the market economy works, you should know that this is not good. It’s in fact, really bad. I was born in a centrally planned economy and I can tell you for sure that it does not work. It creates the worst products that you can imagine. Every time. Why? Because you have a “sure” market. Why should you make your product better if they’ll buy it anyway?
Instead of this massive overhead, you can just subscribe for the best product on the market and run with it.
Don’t get distracted!
Go build these relationships with landlords and brokers. Optimize for efficiency, growth and profitability! The market is up for a grab!
This article appears on the Officernd website here
FLEXIBLE WORKSPACE AUSTRALIA
Flexible Workspace Australia is the peak body for coworking and flexible workspace providers and partners across all cities and regions of Australia.