Coworking & COVID-19

Now more than ever, coworking needs to thrive for when we re-emerge from lock down. But Landlords need to reconsider financial relationships with struggling coworking operators.

Commercial real estate is taking a huge hit right now. Big landlords in both retail and office sectors who are exposed to tenants unable to trade or unable to use their spaces. Restructuring of leases or simple non-payment of rent is likely to be happening at a rapid rate as commercial activities are on hold or being done from other spaces.

Like hospitality and retail, coworking have been forced to temporarily close due to having close human contact. But now more than ever coworking a vital component of the eventual economic rebound once lock down finally ceases. Occupiers of these operations tend to be self-employed or SME’s who chose coworking as they can’t afford traditional leases or benefit massively from their ecosystem. This will only increase when we get back to ‘normal’ (yes, normal is going to be hard to predict).

Also, when we return, larger companies, who have struggled with their traditional leases during this time, are more likely to benefit from the coworking model too. Many have undergone a forced experience of remote working and remained operational. In fact, many may have experienced improved productivity and staff happier not having to commute to the same location. This experience will no doubt force the question: Why do we need such a large, risky real estate overhead, when we've been OK?

Admittedly this is a simplified assessment. But inevitably the question will be raised again: Exactly what is the office for? Well in my years of workplace strategy, the answer is very much dependant on business objectives and operational need; however, for most, it’s about collaboration, interaction and a ‘working home’. But the office is not often a great place to get work done. Many complaints are around the ability to concentrate. With our recent experience working from home will show that, although concentration may have improved and we're OK collaborating virtually, we still need human contact.

In our coworking operation, when surveyed, most of our members valued the community experience. Chatting during breaks, social events and mixing with people from interesting industries that they represent. It's no surprise then that the coworking industry predict many more people will want coworking once the lockdown is over. For larger companies who want to continue homeworking but their employees want more human contact, then surely their local coworking space is the solution.

However, if coworking operators cannot pay the rent, due to the lockdown, landlords have a great opportunity to support the demand for coworking by partnering with operators either through the revenue or profit-sharing model. These models have been around for a long time in the hotel industry. Big brands such as the Hilton and Marriott Group do not pay landlords any rent in many locations, rather pay a share of the revenue against agreed business plans. IWG having been doing this for years and WeWork began doing this before the lockdown and have accelerated this during their recent restructuring negotiations. So surely, it’s time for other landlords to do the same with their recently empty spaces.

Feel free to contact me directly for more information on how this model can work.

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