Yahoo Finance Boom or bust: The future of coworking in post-coronavirus Australia
Over the last three months, Australia’s typically bustling central business districts have been quiet.
The throng of office workers has been missing and offices deserted as people were confined to their homes during the coronavirus crisis.
Now, shutdown restrictions are being pared back in most states, businesses are reopening and corporations are sorting out the logistics of back-to-work policies.
Discussions abound about how the traditional model of 9-to-5 has been disrupted by the pandemic, which has ushered in – and cemented – a new epoch of remote work.
But between the traditional office and the home office, a third type of workplace is undergoing its own transition phase: coworking spaces.
These workplaces face fresh challenges and a future that looks different as the industry adapts to the new ways large enterprises, small-medium sized businesses, entrepreneurs and freelancers operate.
On the one hand, coworking operators face dwindling membership numbers as workers realise they can do their jobs from home and save on commercial rent. And in the new world of social distancing, the allure of coworking – where people meet serendipitously, in person – has lost some of its shine.
On the other hand, demand for coworking is on the rise as large corporations look for ways to cut down on expensive office space. Additionally, as workers adjust to the new normal of remote work, they’re also learning one important lesson: human connections are irreplaceable, and the absence of community has been palpable.
With these different factors pulling coworking spaces in two different directions, will Australia’s coworking industry boom, or bust?
Flexibility on demand
WeWork Australia – the US-headquartered coworking giant that has become synonymous with the industry it belongs to – has copped a bruising from the pandemic.
The New York-based company leases shared office spaces to sole freelancers all the way to enterprise firms like Microsoft, and has coworking spaces scattered across 149 cities in 38 countries across the world. In Australia, WeWork has 18 locations in Sydney, Melbourne, Brisbane and Perth, and in 2019 turned over nearly $90 million.
But Covid-19 has hit this American behemoth hard, and has hit during a time when losses were already ballooning. Last year, WeWork Australia’s net-after-tax losses grew nearly sixfold from 2018, from $7.2 million to $42.6 million.
Over the months of March and April, while most WeWork tenants stayed, some simply couldn’t afford to. Retention rates were three times lower than normal.
But WeWork Australia general manager Balder Tol reminds Yahoo Finance that the coworking darling, born in 2010 from the ashes of the global financial crisis, has one advantage on its side.
“What you see is, during uncertain times, the urge for flexibility increases.”
Amidst the world’s biggest work-from-home experiment, the successful elements that underpin the coworking model – affordable rates, short-term leases, attractive amenities, and an in-built culture of collaboration – are exactly what organisations need during a global pandemic.
“Less organisations are willing to sign up for long-term leases in an environment where there's still a high degree of uncertainty,” Tol said.
That’s where coworking spaces step in. “The pressure for organisations to adopt more of a core flex strategy in order to provide flexibility [to both their] employees [and] financial liabilities will absolutely increase.”
WeWork has seen a higher volume of inquiries from enterprise firms since the coronavirus pandemic began, and Tol predicts an increased demand for coworking across the board. This trend was already occurring pre-coronavirus, but Tol believes that organisations are looking to expand their real estate now more than ever.
But these new inquiries have also come with a higher set of demands for space that allow companies to adhere to new social distancing requirements.
“What's clear is that social distancing comes with the demand for more office space, and not less,” he said.
On the 7th of May, WeWork sent out a document that outlined their new social distancing-friendly layout.
Touch-free soap dispensers in bathrooms and sanitising stations are now a common sight, and the number of people that are allowed to occupy collaborative areas, like lounge spaces, have been stripped back to about half its normal capacity.
Meeting rooms have table stickers indicating ‘pre-distanced seating’, and even the ventilating system has been carefully thought through.
No more spontaneous innovation?
But WeWork’s vision of a more spread out coworking space arguably contradicts the raison d'etre of coworking altogether: to have a workplace that facilitates connections between entrepreneurs, start-up guns, creatives and tech heads, all in the one space.
The first solution has been to move everything online. The tight-knit community of Sydney’s Pyrmont-based boutique coworking hub Here Coworking, just a four-minute walk down the road from WeWork Pyrmont, sticks together and nurtures social connections through online communication channels and Zoom.
“Every Thursday, we have a thing called ‘quarantinis’ where we will have Quarantini Cocktails and do a huge Zoom session where everybody sees each other. That’s how close our community is,” co-founder Galvin Davis said. Davis is one of three co-founders at the helm of Here, and his own creative agency, Protein, is based there.
“Even though they will have their own businesses, they've come to know and love each other so much that they still get together on Thursdays through Zoom.”
But these digital meetings are only maintaining connections that already exist in lieu of face-to-face contact. The real magic of coworking spaces comes from the serendipitous encounters that can only be brought about by a shared physical space – and some wonder whether this can really be re-created online.
“Whilst many businesses might realise that everyone can work from home and connect via Zoom, one of the biggest losers will be ‘creative collisions’, a la ‘water cooler conversations’,” said ColourSpace founder Scott Ko. ColourSpace is based in Cowork Me, in Melbourne’s St Kilda.
“These are spontaneous, unplanned situations where people come together to come up with new ideas or spontaneous innovation; where people overhear a conversation and can then make a meaningful contribution.
“Or conversely, it’s situations where people build meaningful connections with each other when making lunch in the kitchen, whether it’s finding out about a shared hobby, or a personal check-in on an issue that one particular individual may not feel comfortable sharing on a group chat.”
“If a business is choosing to close down their offices, there will need to be spaces where teams can come together and ‘collide', to connect people, and to build culture.”
Co: working/llaboration/mmunity
Creative agency start-up Electric and Analog’s founder Peter Brennan has been a member of WeWork Pyrmont since 2017, and had no plans of leaving – until WeWorkers were told on 16 March that a member had come into contact with a confirmed case of Covid-19.
Though the chances of transmission were low, as the father of two young children and the leader of a business in its early years, he decided not to take any risks and withdrew Electric and Analog’s membership from WeWork.
“For me, [my reaction was]: ‘I need to get out of here’ because I just can’t risk it,” said Brennan.
Brennan’s home office is comfortable and well-equipped and although he now has his kids vying for his attention during the work day, he can crack on with work in a creative studio that is of similar size to the studio he was paying for at WeWork.
Sorting out his one permanent staff member was no issue, either. “I sent him to IKEA with a credit card and kitted him out with a little home studio setup.”
The coronavirus pandemic proved to Brennan what it’s proven to hundreds of c-suite executives across the world: working from home can work.
“The principle was, I can send my designer to IKEA and drop less than $1,000 to sort him out with a home office … or I can keep paying [thousands] a month when I’m actually operating from a studio at home that’s a fully-functioning office.”
WeWork’s private office spaces start from just under a thousand dollars per month but can stretch to several thousand, depending on the size of your team and your needs.
“So I was scratching my head as a young business, paying the money we were paying.
“It just made sense financially to not be paying rent every month if we didn’t have to.”
Brennan hasn’t planned beyond the Covid-19 crisis. Once it passes and offices are declared safe again, it’s back to the drawing board; he hasn’t made up his mind on whether he’ll stay at home, return to WeWork, or get a private office.
But the benefits of operating from a coworking space are hard to look past. “It was a really nice community feel. I mean, in all honesty, the entrepreneurship journey is a very lonely one,” he said.
“Being around other like-minded individuals who are on similar journeys is very reassuring.”
He feels working from home can only be a short-term solution. Once business resumes, Brennan realises they will need meeting spaces and boardrooms again.
“The Covid pandemic has … forced us to adapt like it’s forced everybody else to adapt. We’re surviving at the moment – the goal is to survive this period, but to thrive at the other end of it.”
Where other workplaces are figuring out how to rearrange furniture for social distancing, Davis says Here Coworking was already built like that, something he calls ‘considerate coworking’.
Hot-desking is at a minimum – most members have permanent, full-time desks – and the tables are particularly spacious, and spaced out.
Though the health risks of coronavirus are largely abating in Australia, Davis is aware that it will be a shift in mindset that may pose the most significant barrier to getting people through the doors again.
“The biggest challenge is going to be [waiting] for the fear to subside. I think there is definitely going to be an initial period where people are concerned about going back to any [shared] environment, let alone coworking,” he said.
But people are craving the presence of other people, and that is a significant incentive.
“I think the need for community and the need for human interaction is something that people are going to be yearning for at the end of this period.”
Plan B
Displaced workers who have been forced to do their jobs from home are also reevaluating their options, and have found new arrangements to deal with the disruption to their daily routine.
For some, working from home will be permanent. Until the pandemic hit, Mitchell Kelly ran his boutique digital marketing company from a coworking space in Perth’s CBD.
“With the current situation and the fact that our rental agreement was month-to-month, we have no plans to go back and will be remote working from now on,” he told Yahoo Finance.
“Even though rent was comparatively inexpensive, it was our biggest overall business expense outside of salaries by far. We've found that we're able to get the same benefits of coworking from different methods at a fraction of the cost.”
For a number of fledgling businesses, the solution has been to adopt something that sits halfway between coworking and work-from home: virtual coworking.
This gives the appearance of a CBD address and a PO box for businesses, as well as the ability to use a coworking space’s meeting rooms for a number of hours a month. Small companies like Kelly’s are able to save on overheads, while presenting a polished and professional image to clients.
But does this mean the community aspect of coworking is lost? Kelly says there’s a way around it by finding and attending industry meet-up groups.
“We started our own search engine optimisation industry group on Meetup.com for $300 a year earlier in the year,” he said. “Not only that, we're saving more than $20,000 a year on rent. A massive difference for a small business.”
While many coworking spaces already offer virtual coworking, the solution was one that was rolled out in the middle of the pandemic by Melbourne-based coworking space The Commons in response to sudden demand.
“People still need their packages taken care of, they still need phone service while they’re working from home,” The Commons CEO Cliff Ho told Yahoo Finance. “So we have definitely seen an uptick on that.”
For business consultancy Pantala’s founder and director Renata Bernarde, the shutdown period hasn’t just shown her she can in fact run her business from home: it’s also convinced her clients.
“What I've had to do very quickly is transition my services online, a move that’s been accepted by clients,” she said.
“In the past, some clients have been reluctant to do consulting or career coaching fully online. Now we don't have a choice and they have noticed it's not only possible [but] may even be more effective and productive.”
Like Electric and Analog’s Brennan, the approach from here is to ‘wait and see’. “The jury is still out on how these key aspects of business development opportunities will change or remain the same post-Covid,” Bernarde said.
“So I may not continue with my co-working arrangement in the future. Everything is up in the air right now; I'm still monitoring how we are coming out of lockdown before making a decision.”
But some are raring to get back into the office. Click Start Digital founder Samantha Hurst has been self-employed for more than a decade, and says running a company where everyone works remotely can be very lonely.
“I’m desperate to get back into my normal routine of going into the office three days a week,” she said.
Hurst has been back at Barangaroo-based coworking space Servcorp since mid-May. Like others, the socialising and networking aspect has been a drawcard of coworking that she’s missed.
“I also love getting dressed up to go into an office and I usually go to the gym and catch up with friends for lunch while I'm in there. It’s a little routine that I've created that keeps me sane.”
The benefit of renting a coworking space is that she now has choice, whereas full-time remote workers are effectively locked into their home office. “Like everything, there are pros and cons to working from home or an office, and I feel that I have the best of both worlds.”
‘Third space’: Corporate Australia eyes coworking
Employers are realising that there is nothing necessary about office space – so, in effect, they’re outsourcing it.
From the big end of town, interest in coworking spaces has already spiked. WorkIt Spaces, which is based in Sydney’s Alexandria and specialises in e-commerce businesses, reported a tenfold increase in enquiries in the last two weeks of May compared to the fortnight prior.
“With business owners seeing more hope in the economy, they're looking to coworking spaces as an affordable and community-driven option to start expanding,” WorkIt Spaces co-founder Talea Bader told Yahoo Finance.
“We’ve seen a noticeable difference in the amount of people needing a space that allows them to start or expand their eCommerce business.”
It’s a similar narrative elsewhere. By the second week of May, foot traffic at WeWork was up 27 per cent from the week earlier. In late March, during the height of the Covid-19 crisis, The Commons saw enquiries dip by 80 per cent, and while membership also fell slightly, The Commons has for the most part managed to retain most of their members through a case-by-case member approach and support through rent relief where needed.
“A lot of the inquiries now are coming in from companies downsizing and really wanting flexibility,” Ho said.
Many more employees will choose to work from home. “But they still need to have physical spaces, meeting rooms; they need to have creative spaces to come and workshop.”
The coronavirus pandemic has put the spotlight on working from home, but might have created the need for a second alternative workplace along the way: there will be the office headquarters, the home office, and perhaps the coworking space.
“We might start seeing a decentralised workforce now. There might be more hubs starting to pop up,” Ho said. But it doesn’t mean office headquarters will be replaced entirely. “There will still be the need to bring everyone together.”
Coworking comes to you
Big coworking brands like WeWork have become household names, even for those who aren’t so in tune with the start-up scene. But in recent years, some smaller, lesser-known outfits have cropped up, and could be found in your own neighbourhood.
Platypus Coworking is based in Ballarat, 115km west of Melbourne’s CBD. It was established only two years ago, and is home to 25 local Ballarat businesses.
“I think that regionally, coworking venues should become more popular as people look for alternatives from commuting especially in the short term but don’t like working from home or want to at least separate home and business,” founder Samantha Davies told Yahoo Finance.
“Some bigger businesses might look for hubs in regional areas to provide a different workspace for their staff. Prior to COVID-19, a lot of meetings were already taken via Zoom or virtually and I think that this might increase.”
Inspire Cowork is based in Miranda, in Sydney’s south. What started as a small pop-up gathering of small business and professionals working together in a public space in 2014 has since grown into the biggest coworking space in Sydney’s south.
Here Coworking’s Galvin Davis believes we’ll see a wave of workers who will want to split their time between the office and home.
“What we think is that boutique co working spaces are going to be something that offers brands, a third space between the chaos of the office and the distraction of home,” he said.
“[People are] going to want somewhere where they can go and meet other like minded people in a safe space where it's hygienically cleaned but there’s plenty of space to interact with people and collaborate, but also to be more productive.”
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