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“The economics of coworking has yet to be proven”

Richard Leyland during Coworking Week in Berlin, on a carriage ride to several coworking spaces.

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The economic feasibility of coworking spaces has yet to be proven as a sustainable business model. Many more coworking spaces may open and close before a stable financial model is found. That’s the opinion of Richard Leyland, founder of Worksnug, who has been observing the coworking industry since founding his mobile phone application just over a year ago.

“I’ve yet to see a highly profitable coworking space. It’s something at the moment that is conceptually nice, but whether it is financially viable is still to be proven,” Richard told Deskmag. His analysis was based on his observations and interactions with many space operators over the past year, rather than a statistical investigation. As the coworking industry grows, at least three business models have emerged, which he identified:

Ideal-driven space: Some spaces are set up with a common cause or ideal, such as building social businesses, creating a working community, or incubating particular industry sectors: “People muck in to make it work, even if the economics may not actually be there.”

Business center, with low-cost option: Traditional business centers are moving to capture part of the coworking market by offering shared work rooms at a lower cost. Leyland says that in many of these,  “its the conventional office space that is paying the bills.”

Adjunct business: Small businesses may rent out the balance of their office space as coworking locations to help pay the overhead costs.

In each case, Richard says it is the atmosphere and design of the space that decides if it will succeed or not: “People want a sense of vibrancy, they link it to notions of modernity, modern working, flexible working. If a space provides that, at the same time as providing the variety of spaces required – concentration areas, collaboration areas, a careful audio environment – then that’s the magic formula, that’s what is going to make it work.”

One problem with the coworking business model may be its potential customer base. After all, most coworking customers aren’t high-flying executives, but low-budget freelancers and start-up entrepreneurs: “If you are going for a demographic that is not dripping in money, you have to price accordingly,” Richard says.

Despite uncertainties, Richard believes the coworking industry will expand rapidly in the coming years, with the economics being worked out along the way: “Clearly it needs to arrive at a viable business model, and I think we will see various business models. But coworking spaces will be seen in every given city, because we are seeing an increase in knowledge work, increased expectations of flexibility in where and when you work. All these things mean coworking’s time is definitely in the air.

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