Commercial real estate owners have been intrigued by coworking for the last few years, but always a little uneasy about breaking with the tradition of long-term leases. As times have changed in 2022, commercial real estate owners know they need to offer more flexible terms and need to experiment with the coworking model or risk years of lost revenue with high vacancies. Propques Expert Team helps property owners to understand five different ways they can add coworking to their property with a monthly breakdown of costs for each model.
Property owners have a lot of flexibility in how they add coworking into their spaces. Each coworking model has a varying degree of risk, profit, and required effort ranging from handling daily operations to just cashing in monthly checks. The free property planning Report outlines the pluses and minuses of each model for coworking management contracts, joint ventures, franchising, traditional leases, and starting your own coworking brand.
Here are the five coworking models that Propques evaluates for your commercial real estate property.
Coworking management contracts are revenue-share partnerships that allow property owners to profit from coworking spaces’ rapid growth while partnering with experienced coworking operators. In a typical contract, the property owner is responsible for 90-100% of the full buildout cost, and in exchange, the owner receives the full lease rate plus a large share of the coworking profits.
Coworking management contracts work well for existing coworking chains because it allows them to rapidly expand to new locations and specialize on being great operators and service providers. The partnership of management contracts allows the property owner and coworking operator to leverage their strengths and assets in order to quickly grow and stand out from competitors.
Experienced operators are still rare in the market, and typically only well-placed properties with a high buildout budget are considered. This is expected to change in upcoming years as both owners and operators gain confidence in the model.
Joint Venture: Revenue Share & Profit Share
Joint ventures are common in the business world and work well for coworking businesses. Coworking partnerships work best when each partner brings something unique to the table: the property, the expertise, and sometimes the funding.
Joint ventures typically draw upon local investors and operators. It‘s often easier to find partners willing to invest in a local business than it is to negotiate a management contract from a larger national firm, particularly for smaller cities and lower-class properties. The operating partners are often smaller chains or new entrepreneurs – this can bring an element of risk, but this is balanced out by more input from the investors. Additionally, it‘s easier to bring on financial investors to join the property owner and operator to assist in buildout costs when traditional lending sources aren‘t readily available.
Overall, joint ventures are a good choice for investors that can bring business acumen to the table, while leaving the day-to-day operations, control, and a share of the profit to other partners.
For owners that want to operate their business with significant operations help, operating a franchise might be the right solution.
Franchises provide enterprise-level support that even experienced coworking operators can‘t easily match. Franchises invest in unparalleled marketing & branding campaigns to funnel clients to your door, and often provide turnkey training manuals and software packages to help keep operations smooth. Different franchises target different markets and property types, which makes finding the right partner significantly easier.
Franchises typically reach profitability faster, and you benefit from a loyal network (resulting in lower vacancies and more profitability from conference rooms and event rentals.) Franchises typically take a cut of revenue, not profit, which can be a hard burden to overcome. Your risk is about the same as starting from scratch, although exiting the business with an active contract is more difficult.
Leasing a coworking space is a familiar and comfortable concept to property owners. The coworking space leases a unit from the building owner in exchange for a fixed rental rate, a tenant improvement budget, and a security deposit. This provides a predictable cash flow to the building owner as long as the coworking space remains in business. However, predictable often means lower returns, and more entrepreneurial property owners have options that have the potential for higher returns.
Leading coworking chains like WeWork make their money through short-term contracts with office users, meaning their income can go up and down with the whims of the market. But the rent it pays landlords is fixed. This so-called asset-liability mismatch at the root of the coworking industry is well known, and after the COVID-19 pandemic and WeWork‘s failed IPO, many investors and coworking space operators are looking past the lease and towards different models of shared risk and reward.
Starting Your Own Coworking Business
For dedicated entrepreneurs looking to maximize the potential profit of their property, or for investors looking to establish a brand across multiple cities in their portfolio, building and operating a coworking brand may be the best step.
Property owners that build their own coworking brand from scratch tend to work best when they can leverage their assets so the entire portfolio benefits. Apartments with commercial space attached can use coworking as an amenity to the tenants and fill empty commercial space in the portfolio. An investor might convert a vacant retail space in the suburbs to coworking so the entire block is seen as upscale and desirable to other CRE tenants.
Of course, out of all the business models, the DIY route carries the highest level of risk and time-to-market. Expect two years to reach profitability and leave margin (time and budget) for initial errors and cost overruns. Where possible, reach out to experienced consultants and operators as advisors.
Propques, a marketplace to create & add coworking space businesses.
Armed with big smiles, over 6 years of national experience, operational expertise, and in-depth industry knowledge our goal was and still is today to help as many individuals as possible establish their own footprint in the flexible workspace industry.
We waited a long time to say this…But there has never been a more exciting time in this industry and we want to be right there driving strategies that work, formulas that produce fantastic ROI, and provide free operational resources for existing providers and their teams across India – no matter where they might be in their flexible workspace journey.
What we can do
What is Possible: Uncover the possibilities and viability of your vision, floor plan, and member models within a single location or full portfolio.
How to Maximize ROI: Develop a profitable facility and service strategy with our proven formulas.
We Manage (Sales, Marketing, Operation ) it for you: Utilize our decades of industry know-how to sequence the processes from day one through to launch and beyond.
We Train and Support Your Team: We are serious about your success and can train and support your team from start-up, launch, and ongoing support.
But the best part of all… is to work right alongside each and every client, show them what’s possible, and arm them with tried, tested operational tools, resources, and the ability to build a really incredible, rewarding, and financially successful workspace business.
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