What is Co-Working and Why has it Become so Popular with Startups?

Co-working spaces are all the rage in commercial real estate this year, and recent studies show that this trend is not likely to slow down anytime soon.

Made popular by companies like WeWork and Regus, co-working offices offer an alternative to traditional office spaces for entrepreneurs and business owners trying to get their company off the ground.

Co-working began in San Francisco, London, and Berlin back in 2005 as an organic concept started by users. The basic principle back then was that individuals and small businesses needed a place to meet and work during the day, instead of working from home or meeting at various coffee shops. Today, it is a global concept which is far more elaborate. By 2018, it is estimated that 1 million people will be using 12,000 spaces globally.

One of the most popular branded co-working operations in the world, WeWork, has grown from 20 locations six years ago to 125 locations across 10 countries today. The company is currently in hyper-growth mode, according to Jon Slavet, WeWork West Coast general manager.

Offices provided and maintained by companies like WeWork or 1871 now offer large, contemporary open-floor plans with smaller rooms that can be booked for important meetings or group gatherings. Many companies also provide food and beverage services within their buildings. This model has shown to be very beneficial for running a business, as there are a couple of key components that are alluring to the young entrepreneur.

First things first, co-working is much easier on the bank account if you are small. Startups and small businesses especially can benefit from this; for as little as $700 a month, a business can get a premier address, a single office with a phone system, accounting programs, mailroom and even health facilities. Now, co-working chains have gone beyond just spaces to become guilds of sorts, offering entrepreneurs and freelancers the chance to experience the advantages of corporate employment without the usual strictures on freedom. WeWork, for example, offers members discounted health insurance, and RocketSpace combines offices with accelerator infrastructure, matching tenants with venture capitalists.

Another reason co-working is so popular is that it is a breeding ground for networking and making meaningful connections to help expand businesses. These types of spaces attract talented individuals from all sectors, and the open-floor plan encourages communication and collaboration in these settings. These spaces are the perfect setting for growth and innovative thinking, as everyone who comes to work there is motivated and goal-driven. This also presents an invaluable opportunity to scout new talent for a new business. For example, Santa-Cruz-based Plantronics’ software division uses the NextSpace co-working chain as a satellite office in San Jose, in part to study consumers of their products who often inhabit co-working spaces.

What are some of the drawbacks? The primary one may be distraction. Focus work today outnumbers others (including collaborative work) by 3:1. In some surveys, 80% of people prefer private to collaborative work and complain about noise levels in co-working environments, especially benched areas. Space planners refer to these as indefensible public spaces – places which don’t provide any sense of identity or control because they are shared by too many people. In those instances, what is needed are soft spaces where you can retreat – a semi private porch concept where workers can go for private work or to take a call, for example.
The second drawback is that co-working is exorbitantly expensive once you pass a certain headcount. According to National Real Estate Investor, “While the cost of co-working space at WeWork and Regus properties may make sense on a per person basis, it comes at a premium compared to traditional office space. The JLL report notes that a sampling of shared office pricing across major U.S. markets revealed a per sq. ft. price of $139, compared to an average class-A CBD rental rate of $49.59—a 181 percent premium. When looking at average rental rates for all regular office space, that premium jumps to 331 percent.”

While shared office space represents only a tiny share of total office stock in the country at 0.7 percent, its growth is on the fast track and now encompasses 27 million sq. ft according to a JLL report on Shared Workspaces.