2) How coworking spaces are reducing their expenses in the first phase of the crisis
Two thirds of all coworking spaces rent their premises, with almost half of their monthly expenses being used for this. Landlords therefore will play a crucial role in the future perspectives of their businesses, especially the longer the lease term is running under the current conditions. If they fail to meet the potential need for lower rental prices, the risk of insolvency will be greatly accelerated if there is a sharp decline in the number of paying members.
Since many long-term members themselves are demanding cost reductions or want to cancel their contracts at short notice, coworking spaces can learn from their tactics and use them in negotiations with their landlords.
Some countries have introduced legislation to allow the suspension of rent in emergency situations. Some larger chains, as well as some members, make use of this even without such a legal basis.
For example, members carry out a chargeback for rent they’ve already paid. Workspace providers, in turn, make their landlords responsible for the restricted use of the site, thus justifying the suspension. Regardless of whether this is legal or not, it at least could buy them some time.
However, it doesn’t seem to be very common practice. In particular, coworking spaces with a stronger community report a wider solidarity among members. And landlords are at least often more willing to offer a break in payments at short notice.
Those who are interested in maintaining a good future relationship with their landlords – and vice versa – usually arrive at the best solution for both parties by discussing the situation together.
The second largest item of expenditure is (the salaries of) their employees.
This is a particularly stressful issue on an emotional level, especially for smaller coworking spaces. Redundancies have not been a top priority in public discussions as of yet. However, it is difficult to imagine how they can be avoided if severe economic restrictions persist.
Large chains have already laid off some employees. In smaller spaces, they are often initially furloughed for some time. And staff members without employment contracts do not need to be dismissed.
In some countries such as Germany or Austria, coworking spaces have sent their employees on government-paid short-time work to avoid immediate dismissals. This way, the business continues to run on the back burner without the employees losing the majority of their income.
Wherever employees have to be laid off, coworking spaces are not only saying goodbye to expenditure items in the short term. If qualified personnel are lost completely, it makes it difficult to resume operations quickly later on.
Many coworking spaces have stopped recruiting new members during hard restrictions.
Active acquisition does not seem to be very effective, especially during lockdown measures or strict bans on physical contact. In addition, lots of people find ad campaigns for new members during such a situation disrespectful. Pausing those campaigns also saves money, which is urgently needed elsewhere.
If possible, cost-intensive investments, such as further expansions, are also postponed during the initial phase of uncertainty, with an option to cancel them at a later time.
By contrast, there are also some coworking spaces that are exploiting the emerging gaps and the more favourable price environment. They are preinvesting in lower marketing prices, driving expansions or planning takovers.
This strategy requires sufficient risk capital. Potential or even temporary losses should be affordable, which is why this strategy is only suitable for a minority.
▶︎ Next page: (3) Adapting business models
(1) Securing income, (2) Reducing expenses, (3) Adapting business models, (4) Simple Outlook