Share and Share Alike
In 1963, folk singer and future Nobel Laurette Bob Dylan famously sang, “ the times they are a-changin’.” He was wrong. The Sixties up until the 1990s marked the triumph of the age of analogue communication, fossil fuels and the internal combustion engine organized around an capitalist socio-economic system.
But in the opening decades of the 21st century, the times really are changing. Although the full social and economic implications of this digital revolution, combined with renewable energy and what is called the distributive chain, is hardly settled. Indeed, this uncertainty even underlies the almost Luddite popularism currently unsettling the politics of advanced economies. The nature of work and work relationships in this “third industrial revolution” are but a couple of crucial unknowns hotly debated.
A component of this debate is whether coworking office models reflect the ultimate office environment for the disruptive knowledge economy or is it simply an interesting but ultimately niche real estate market already reaching maturity. On the one hand, Forbes magazine declared in 2013 that coworking spaces would make traditional office space obsolete over time. Three years later, Contract magazine dubbed coworking “a workplace paradigm shift.”
Similarly, Bisnow, an online commercial real estate news blog, headlined an article in its last November Toronto addition, “Coworking is Changing the Face of the Office Around the World” and quoted one source as predicting a market penetration of up to 15 per cent. A second Bisnow article headline declared, “Co-working places are taking off in Toronto” with 39 coworking providers offering 80 different locations throughout the city.
On the other hand, Coworking: A corporate Real Estate Perspective (2016), a detailed analysis by HOK/CoreNet Global, provided a more dispassionate real estate focus suggesting the coworking market is approaching maturity and foresaw a modest maximum penetration rate of two to four per cent. Interestingly, in March, Bisnow reported that New York-based coworking giant WeWorks was having difficulty filling spaces in its Washington D.C. locations, while the Vancouver Sun reported that same month that the company leased seven floors in Vancouver’s Bentall III tower in a bid to attract 1,500 people to what it refers to as a “community of creators.” So, are coworking offices the wave of the future or merely an interesting but inevitably limited niche market? Or, is it a model somewhere in-between whose work environment impact will reach beyond its market share?
Coworking, closely tied to the emerging digital/knowledge economy, is considered a relatively young concept. The HOK study cites 1999 as its origin while others opt for 2005 with the purported first location opening in San Francisco. Media attention has focused on cutting edge independent coworking spaces with the web full of articles on “the five or ten best coworking spaces in (fill in the Canadian city).” Conversely, Regus, a US$20 billion-valued Belgium-based corporation, introduced its first coworking spaces into its more traditional international office network in 2010, says Canadian executive vice president Wayne Berger. This March, Regus opened its 100th Canadian coworking location in Calgary with more planned. Worldwide, coworking magazine Deskmag (2017 survey) reports there are now 13,800 locations servicing almost 1.2 million “members.” While growth rates have fallen as the base numbers rise, expected 2017 increases are predicted to be 22 per cent and 41 per cent respectively.
But what exactly is a coworking space? How does it differ from traditional shared or hosted office space that has existed for decades? Is there “authentic” coworking spaces grounded in a new work/social movement or do they represent simply the addition of a real estate sub-sector serving an emerging niche demand?
The answer is usually both, but weighted to one or the other depending on whom you ask. Jean-Yves Huwart of the Brussels-based Social Workplaces conferences defines coworking in a single word, “open.” He means not just spatially but as a welcoming, managed environment where “you can show up any time and propose yourself to become a coworker…. [such] spaces also create a proper identity and thus a sense of belonging that is the root of the creation of communities.” Traditional shared offices, while not excluding interaction, tend to have a much more static environment, he adds. Christine Andrews, speaking for Coworking Toronto, a collaborative instrument for 15 “genuine” independent coworking spaces, passionately emphasizes principles that seek to redirect the cultural/economic dynamic of work. “Within a true coworking space, the priority is placed on the people, not the physical space….Community, collaboration, accessibility, sustainability and openness [are the values]. We believe that everyone’s creativity and productivity are enhanced by the other members within the community. Coworking owner/operators actively encourage and some curate their communities to attract members open to collaboration.”
Yvonne Woodley, manager at The Seedworks in Hamilton, Ont., the city’s first coworking space, also cites flexibility and community but includes the practical importance of providing a well-managed space handling some (although not all) administrative hassles.
The HOK study defines coworking as “computer-supported collaborative work…[where office spots] are largely open [80 per cent opt for non-enclosed work spaces], collaborative, collegial and fun.” But Robyn Baxter, vice president and regional leader of Consulting for HOK’s Canada practice, is more circumspect, preferring to say the definition is evolving in what is not a mature industry. Still, she adds, “there is a notion of a place to go to work when you don’t have another place to work, where you have the amenities including the social aspects of work.” But the one point on which many agree is that coworking is premised on a flexible membership model, not fixed lease arrangements. But even on this point, there is significant variation in how memberships work, who the target members are and what membership provides.
In what we might ironically call the “classic model,” coworking locations are largely urban-based, providing a managed work environment that is open with unassigned desks or work spaces. Opinions are almost unanimous about the importance of good, even fun and funky design that carries over into generous, interactive communal spaces. These latter spaces reflect the view that most coworking locations (although not all, says Andrews) ensure extensive programming promoting networking, collaboration, social interaction and even skill enhancement events. For Huwart this is key: “providing human-focused connections, interesting events, social moments, fun, networking etc. is what gives value nowadays… but don’t underestimate flexibility to scale up or down easily.” Flexibility usually includes 24/7 use. There are limited shared services although the core role of digital technology in underpinning coworking means Ethernet and WiFi come standard.
As makeshift coworking spaces shifted to dedicated locations, the economics of coworking, says Baxter and the HOK study, reflected a period of relatively low commercial rents, especially for industrial legacy structures or B-level office buildings. This supported modest initial financial outlay. Thus the majority are still modest independents (although Deskmag’s survey found only 41 per cent are profitable solely on the basis of their business operation) with owners often driven as much by a desire to connect and improve both their own and other independents’ working environment than by a quest for a healthy return on investment.
Initially, coworking spaces were the haunt of a younger male demographic, operating as IT freelancers, entrepreneurs and start-ups, says Andrews, while Huwart suggests freelancers in general remain the sector’s bread and butter. But this ideal profile has rapidly morphed into a much more polyvalent sector. Variation in business models, services on offer, user profiles and available membership types are all evolving.
First: What are the Emerging Business Models?
It may be useful to group coworking into six categories.
Independents: The leading force in coworking has been independents driven by commitment to a new collaborative work environment for freelancers, small entrepreneurs, start-ups, non-profits and even artists, all facilitated by low entry costs. While favourable lease rates have played a role, many like Seedworks and Coworking Toronto participants own their own spaces.
Independents Collaborating: A growing trend has been the development of collaborative arrangements between independents. We could call this the Home Depot vs. Home Hardware model as independents band together to share members, programming, recruitment, and so on, in the face of increasing penetration by larger corporations. Such is the Coworking Toronto model. An ambitious initiative is the Coworking Visa Map curated by Vancouver’s independent Network Hub. It offers a “coworking visa” that allows members of one space to use another around the world free for up to three days.
The Organic Spreaders: Some successful independents are spreading through “organic” growth. For example the Network Hub, says co-founder Jay Catalan, emerged from a desire to create coworking space both for themselves and other similarly situated workers. Now with locations in Richmond, Whistler (boasting the world’s only ski-in coworking space), Nanaimo, Vancouver, New Westminster and soon Calgary, growth has come less from corporate expansion than from community requests and invitations to expand.
Corporate Giants: While some independents are uncomfortable applying the term coworking to large firms like Regus, ServCorp or WeWork, others such as Huwart and Baxter see larger corporate expansion as inevitable. WeWork, for example, has reached a US$16 billion evaluation. Regus’ Berger sees definite consolidation but believes there is still room for both models, although he warns that the other side of low entry requirements can create volatile maintenance costs. “The difficulty,” says Woodley, “is keeping [spaces] filled because by nature use is flexible….you get the situation where you have eight or nine desks free again [but] your costs are fixed.”
Corporate and Building owner add-ons: Two different but related models include corporations that attach coworking spaces, sometimes as “lost leaders,” in their own offices and building owners who set aside coworking-type floors. With the first, companies see it as a way of encouraging networking and collaboration with start-up innovators, often by including their own workers in these spaces. Building owners see it as a way of using empty space or as providing a benefit to their traditional lease companies. “I think you are going to see more landlords with some type of co-working space that is open both to businesses in the building and to the public,” predicts Baxter.
The Disrupters: Finally, there is a host of other “ disrupters” operating at the edge of the coworking sector. Of course the ubiquitous coffee bistro remains relevant, as anyone who has tried to find a seat to just drink their cappuccino can attest. But some hotels are upscaling their traditional business suites as well as using underused restaurant/event spaces with coworking options. Libraries, community centres, colleges and universities are also emerging as players in the coworking market, and Bisnow reported on Toronto’s first condo with coworking space last December.
Second: as the British would say: “What’s on offer?”
While the services and attributes outlined above remain relevant, particularly the generous scope for collaboration and interaction, there has been a broadening of services. Availability, however, varies by location. Provision of practical services such as high quality printers, reception services and mail handling are increasingly common. While The Seedworks does not provide reception, for example, Woodley reports it is frequently raised by perspective members.
In a bit of back-to-the-future, the original tightly packed work table with computer connections has expanded to frequently include individual desks (including assigned rather than first-come/first-served) with small storage capability, private phone booths, meeting rooms and enclosed offices. In Hamilton’s The Cotton Factory, its large open space is dotted with enclosed glass boxes that offer defined space for four-person organizations.
WeWork offers free beverages (including beer) but also helps members, according to Forbes, save US$200 on healthcare, and through Amazon Web Services save on first-year web hosting. Fee add-ons provide access to conference rooms, phones, and mail service. Regus offers similar services but with a broader offering of 3,000 sites worldwide including a network of 800 coworking-type airport lounges.
Third: So, who uses Coworking?
Freelancers, consultants, entrepreneurs, small businesses and non-profits moving away from the dining room table, home office, garage or noisy coffee shop remain the staple for coworking. Business travellers, both international (Deskmag’s survey found 32 per cent of users work abroad at least three weeks annually) or those whose work is largely away from the office are also taking advantage of coworking in preference to hotel rooms or coffee bistros. The widening range of available memberships has helped these mobile workers.
Frequently, independents target specific sectors. Woodley, for example, reports each of Hamilton’s three independents focus on different clientele. Her members tend to be older professionals; Co-motion’s members are younger and in more tightly packed spaces with a stronger party atmosphere; and The Cotton Factory cater to arts-related operations and non-profits. Alex Konrad, in a 2014 Forbes U.S. survey, listed Hera Hub as running three locations dedicated exclusively to women entrepreneurs and Breather as focusing on hourly rentals.
But the biggest shift has been corporations placing their employees into external coworking spaces. While many agree this sector has and will be crucial, there is a significant divergence as to why. A majority still see freelancers and start-ups as a growing component in today’s economy. Not so fast, cautions the HOK study. In fact, it reports this sector’s share of the workforce has actually declined for some decades. Instead, the contingent workforce marked by often short-term contracts and frequent changes in employers is the power growth sector. Coworking memberships permit corporate employers to minimize facility costs for contract employees and those hired for time-limited projects. But companies also place employees into coworking to facilitate networking and to participate in what is often a highly creative and innovative environment.
Finally: Memberships are Evolving
Many coworking locations started with month-to-month memberships providing users more flexibility than standard lease agreements. While the original model focused on unassigned “hot desking” spaces, most monthly memberships now include reserved individual desks and even closed offices. Packages offering a certain number of user-days per month are common. Increasingly, “daytrippers” can pay a daily fee for a seat and Ethernet connection. WeWork’s most basic membership is a simple fee permitting utilization of any location for a daily or hourly fee. From there, it offers location-based hot desking, individual desks and private offices. Since 2008, Regus’ Businessworld membership provides travelers access to any of its services worldwide.
Many coworking centers emerged in a time of high unemployment and low rents. But 54 per cent of coworkers will leave a specific location in less than a year. High turnover and tenant instability challenge coworking centres to maintain profitability, as they are vulnerable to market conditions and new competitors. To attract members, coworking operators use social media (80 per cent, particularly Facebook, reports Deskmag), community building (78 per cent) and events for potential members (62 per cent) among other techniques. A significant number, 21 per cent, use the Coworking Visa Program. Woodley reports her daily users are often responding to promotion pamphlets at Tourism Hamilton and the city’s Small Business Centre and, significantly, through word-of-mouth. Andrews and others also say apps like Liquidspace, Sharedesk, Happy Desk, Breather and Rally are increasingly important recruitment tools. Regus has its own booking app.
Growth and Challenges
The HOK study concludes that coworking penetration will mature at two to four per cent; those in the business suggest perhaps 15 per cent. One difficulty in predicting accurately, however, is what exactly defines coworking, given rapidly expanding parameters of ownership models, services, users and memberships. While Deskmag reported location growth in 2016-2017 reaching a new high with over 300,000 new memberships, it also found 63 per cent of locations surveyed believe the number of existing spaces was “just right” while 14 per cent said “too many.” Only 23 per cent believed there were “too few.” This said, 67 per cent of coworking operations surveyed plan to expand.
“Although coworking space makes up less than one per cent of the world’s office space, it represents an important workforce trend and highlights the strong desire of today’s employees to have workplace choices, community and flexibility,” said Kay Sargent, report author and director of WorkPlace at HOK. “Driven by demand factors, including next-generation work styles and the desire for real estate portfolio agility, C-suite executives from human resources, operations, real estate and finance are increasingly interested in how coworking affects their work practices and policies—and how they need to design, manage and operate their workplaces.”
Most of those interviewed also note that Canadian demand is very localized with secondary markets including smaller cities and even the suburbs exhibiting the greatest growth potential. Operators in larger markets, however, may face rent squeezes as leases expire, concludes the HOK study. This will give a competitive advantage to those who own their own facilities. Ultimately, the dramatic changes taking place in the labour market, the work environment and the nature of work itself makes predicting coworking’s share difficult. While strictly defined, it may be a relatively small player in the office real estate market, however, if the concept remains fluid and evolving the consensus is its flexibility and commitment to creative, collaborative work environments will penetrate deeply into more traditional offices.