Space as a service:

What’s next for co-working businesses and office real estate owners?

By Ralph Mitchison, Global Real Estate & Construction Industry Leader

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The ‘Space as a Service’ product has been a successfull concept within the real estate sector in recent years. But the COVID-19 pandemic has severely disrupted the business model, which may not bounce back in quite the same way once the dust settles. Globally, the co-working industry was a $26 billion dollar industry in 2019, helping small business owners work collectively, yet separately and giving them access to amenities such as: 

  • business-class printers
  • high-speed internet access
  • spacious common areas (which often include desks, chairs, lamps, and lockable file cabinets)
  • free refreshments
  • an onsite staff
  • private phone booths

Companies like WeWork also host events such as wellness sessions, networking events, one-on-one introductions with investors and industry leaders, and catered lunches where members share tips, knowledge, and expertise. For freelancers and small businesses, co-working and flexible working spaces were just what they needed to start and grow their companies. Co-working spaces started popping up from early as 2000. Space as a service was a profitable product for real estate businesses and flexible working spaces were set to grow up to 30 percent annually for the next five years across Europe in 2019. The characteristics of the space as a service model enable landlords to charge higher rents because of the short-term commitments and generate a higher return. The flexibility allows the business to cut their cost quickly if they don’t succeed. But today, the strengths of the business model become its Achilles heel, as tenants are struggling through the pandemic and cut their cost by working from home. Then there is the safety aspect as well. Since the threat of COVID-19, co-working spaces have been temporarily shut down. This has led many to wonder whether the co-working industry will be able to recover.

Let’s take a closer look.

Impact of COVID-19 on the real estate industry

As a result of the pandemic, co-working space companies are suffering a huge financial loss since people can’t work in close proximity to one another. While some companies have waived their fees for small business owners, others are still charging their monthly fees, despite the pleas of many business owners or freelancers.

COVID-19 has caused many of the world’s largest developers to have to rethink the future, which meant canceling current projects and coming up with new solutions that fit the “new normal.”

People won’t be able to share the same common area without being at least six feet apart, which means developers have to think about how to address these changes when it comes to the floor plans and layouts of space as a service businesses.

The future of ‘Space as a Service’ for real estate businesses

Real estate businesses must figure out how to adapt. That means considering how to repurpose their properties and how to make them attractive again to their potential clients as we prepare for life after COVID-19.

That might entail creating a new business model in which landlords, tenants, and flexible space providers work together to create a scenario that allows everyone to come out on top. A more collaborative approach is on the horizon for the post-pandemic environment that many are still trying to find their way to. Real estate businesses will have to determine how best to provide the flexibility freelancers and small business owners need in this new landscape while keeping them safe.

Despite the effect the pandemic has had on co-working space occupancy rates, some expect the demand for co-working spaces to increase, possibly even higher than before the pandemic. However, the way occupants use space is likely going to change. Buildings need to be redesigned in a way that caters to a contactless existence. Think automatic doors and lifts, contactless interfaces, increased reliance on robots, an upsurge in digital events, and a strengthened digital infrastructure.

And co-working spaces are also increasingly competing with home-offices. About 60 percent of the UK’s adult population is currently working from home because of the Coronavirus lockdown. And since research suggests that working from home might boost productivity (about 65 percent of people said they’re more productive working from home), this could spell trouble for the space as a service business. Now that employers increasingly adopt home-working policies, the need for office space in general declines.

A post-COVID-19 world may look a lot different than what people are used to seeing, but it is a necessary part of preparing for an uncertain future. As the world begins to reopen, the co-working space business is adjusting to a new way of life.

So, what’s next for co-working businesses?

While the future may seem uncertain, everyone is quickly learning to adapt to the “new normal.” The real estate sector is no different. Real estate businesses will have to pivot to new business models to turn a profit despite the current state of things. People will eventually go back to the office and they will need office space to do that. So for all the co-working space businesses out there, adapt your product, and prepare for your customers to come back soon.

Ralph Mitchison

Global Real Estate & Construction Industry Leader

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