Are most coworking spaces in dire financial straits?


When coworking magazine DeskMag recently asked 1,500 international members of the coworking movement about their experiences, most of the news was positive. But as we reported at the time, one negative figure stood out. Only 40 percent of coworking spaces appeared to be profitable.

How bad is the news that more than half of coworking spaces are losing money? Does this spell possibly fatal trouble for the advance of the idea? DeskMag dug further into the figures to find out.

It turns out there’s a big disparity between the profitability of brand new coworking spaces and those that have been around for more than two years. And, as DeskMag explains, this fact coupled with the relative infancy of the movement means the prognosis isn’t so dire:

It should be noted that very few companies in any industries achieve a profit in their first months of existence. And currently, more than half of all coworking spaces are under one year old. That the majority of spaces are not turning a profit could have much to do with the infancy of the movement.

Another important limitation is the corporate form. If 13% of all spaces utilize a non-profit organizational form, economic gains are placed behind social gains for a portion of the industry….

And finally, the long-term picture should be kept in mind. The second Global Coworking Survey shows that 72 percent of all coworking spaces become profitable after more than two years in operation. For privately-run [sic] coworking spaces (those which are not non-profit groups or government-run), the profitability rate after more than two years is even higher, at 87 percent.

Like many of the coworking space founders we’ve talked to, DeskMag also agrees larger spaces tend to do better financially.

70 percent of all privately operated coworking spaces that serve 50 or more members run a profit. Only one in five spaces in this category suffer losses. Coworking spaces with between 10 and 49 members have a profitability rate of about 40 percent — close to the overall average. The more members they take on, the more profitable they become. Economies of scale also affect coworking spaces.

The most difficulties are suffered by small spaces with less than ten members; 56% of them report a loss. Even though they pay less rent and have lower operating costs, only a quarter of small spaces achieved a direct profit.

The overall takeaway here may simply be that while coworking is a “movement” and for some is more about community and quality of life than the bottom line, the spaces themselves are also businesses and will be subject to the same principles — including those that dictate profitability won’t be instant and economies of scale will be in effect — as any other enterprise.

For much more on the finances of coworking spaces, especially details of how many founders initially make it work, check out the complete post.

If you’re a member of a coworking space, do you know how it’s doing financially?

At Net:Work, we’ll explore coworking’s growing collaboration with big business. Is this a boon for both? The event will be held in San Francisco on Dec. 8.

Image courtesy of Flickr user timetrax23.


Tyler Ford

We started Lightbulb Coworking in fall of 2009 based on a close to break-even model. We have been cash-flow positive since 90 days in and continue to do well. We have even reached a decent level of profitability after upgrading our space and amenities and adjusting rates accordingly.

As the article and comments allude to, the only major obstacle we have encountered is the need to educate the community. Even in the relatively large city of Charlotte, the concept is often a new and novel idea that is not commonly understood. That has been mitigated by our city being so transient and bringing people from more coworking-friendly markets to Charlotte.

Having been the first coworking space in Charlotte, we have seen about a half dozen other attempts which have all closed within 6 months or are basically just sitting empty. Several of those were simply people with extra space who decided coworking might be a way to put surplus square footage to work.

I think that one of the problems with the coworking “movement” is that it often is treated too much like a “movement” or intangible idea, and less like a business. Find a need, meet the need, develop a profitable business model, make a profit. Even from my early research into the idea, I have been less inspired by the “movement” and more inspired by the fact that the model of a more flexible and accessible office space is simply a good idea that resonates with today’s worker. More “head” and less “heart” guiding the process.

Perhaps more focus on the business, the desks, the space, etc…and less focus on the acoustic Kumbaya circles that are suppose to spontaneously appear when the “community” gathers would better serve some space operators. I was even told, and have heard other well-known space operators around the country state that coworking cannot work without a community already established. I knew no one when we started. No community, no followers…but we have that now.

We have a great community…great collaboration, social interaction, a high level of sub-contracting between members and all of the things that coworking can provide.

But…it started with a great space…with a desk, a chair, a great internet connection…at the right price. Simple.

Craig Baute

Thank you for pointing out that many coworking spaces are new and less than two years old. Most business don’t turn a profit until they are 3 or 4 years into operations, and coworking spaces have the extra challenge of awareness of the concept and not just the space. This means that coworking spaces have to first educate people and then awareness of the ‘brand/space’ itself.

Creative Density was the first coworking space in Denver to open in three years and many of the older spaces stopped promoting the coworking concept in any meaningful way. When Density opened up in June I had a lot of education to do about coworking before I could even talk about Density, but this also means there isn’t much competition. We will likely be operationally profitable this January (7 months old).

I think we will start to find that coworking spaces will start to start to be profitable after their first 18 months or so. As the new movement ages the percentage of survivors will go up dramatically.

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