Published on 8 Jun 2020

Coworking Is Surviving Its Trial By Fire

 The business model is untested, they cried. You need to see how it performs in a recession, they said. The flexible office space had not seen a downturn before. Well boy, it has now. And so far, it has performed better than a lot of people expected.  It is early days, of course, and this crisis still has some (maybe even years of) distance left to run. But data drawn together by Bisnow shows the flexible office business model has had resilience in the face of a perfect storm of problems, and that demand is starting to return.  There are some big hurdles to overcome; principally, how a sector that boasted of how it allowed people to interact convinces people it is safe in a world where interaction is forbidden. Some operators will not make it through the crisis, and others will be forced to shrink. But with the way people use offices going through the most radical overhaul since the concept was invented, flexible office have the chance to capture any growth opportunities that emerge in the new world. 

 “It has been like driving a car into a brick wall: You can’t expect it to come out unscathed,” Labs Chief Commercial Officer Matt Watts said of a year when governments across the world told workers not to go into the office, leaving pretty much the entire flexible office sector open but unoccupied. Rather than rely on anecdote, what does the data tell us about how the sector has fared in the UK?  In terms of demand for space, Watts’ analogy is not far off. Demand dropped to 35% of pre-pandemic levels in the UK in April, according to data from Instant Offices, an online flexible office portal. Fellow portal HubbleHQ pegged demand in London at 20% of pre-coronavirus levels in April.  But actual occupancy levels were fairly robust. Average occupancy in the UK fell from 92% to 77% from March to June, according to Workthere, the flexible office advisory division of Savills. Of course, a 15% drop in occupancy in the space of a month is not ideal, but it is not as bad as it could have been.  “When looking at assets leased to flexible operators, valuers have been working on the assumption that in a downturn, all the customers leave,” Workthere Global Head Cal Lee said. “This is the worst possible recession and it only dropped 15%. That’s very positive, and demonstrates the strength of the sector in the longer term.” In a survey Workthere found that 28% of UK operators had been forced to offer discounted rents to members, and Instant found that discounts offered ranged from 5% to 50%, with the average coming in at about 15% to 20%. That has further hit the margins of operators, and some might not make it to the other side.  

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