In this blog, we decode how the business model of a Co-working space works.
As an adult, we spend a huge chunk of our time at work, right? In fact, for many of us, it’s even more than the time we spend at home.
Traditionally, if you owned a business, you’d have to buy or rent out a space where you and your employees could work. This has been the norm for centuries, and it’s not going away anytime soon. But here’s the thing – the concept of a workspace or an office has evolved a lot, especially in the last 5 years.
This concept, which started out as a fun way for people to collaborate and experiment back in 1995 has today become an essential and viable option to setup a workspace for any kind of shape and size.
It is also an attractive option for real estate owners to earn rental yield.
Alright, let’s dive into how co-working spaces operate and what to look for when exploring this business model. After this, you’ll have a solid understanding of how co-working business works.
What is Co-working?
If you’re starting a business, you need an office, but regular office spaces can be expensive and limiting. That’s where co-working spaces come in! They’re way more flexible and affordable.
You share the space, furniture, AC, beverages, and internet with other tenants. Instead of paying for the whole office, you pay a fixed price for the services you use, whether daily, monthly, or yearly. In return, you can use all the shared office space.
The co-working space owner also benefits because they don’t have to depend on just one tenant. They spread out the risk, so if one person vacate the property, it’s not the end of the world.
Alright, so that’s how co-working spaces work. Now, let’s look at the different types of co-working spaces from the real estate owner and operator’s point of view.
Types of Co-Working Spaces:
While all have some advantages and disadvantages, their basic economics remains the same.
Revenue Streams for a Co-Work:
Membership of Co-working Space
The main source of revenue is membership that a co-working space charges as per the customer needs.
- Hot desks - Shared desks for occasional use.
- Dedicated desks - Your own desk with flexibility.
- Private offices - For teams or privacy.
They could be charged daily, monthly, quarterly or annually based on customer preference.
Renting to both Members & Non-Members
Co-working spaces generate extra revenue by renting out:
- Conference rooms for meetings and events
- Amenities like lockers, private offices, kitchen, etc.
- Equipment like printers, computers, and event spaces
- Cloud storage and other services
Leasing Extra Space :
If there’s extra space at a co-working office, it can be rented out for:
- Low-cost services like coffee shops or snack bars to serve members
- Promotional events with local food/drink companies
- Advertising space for nearby businesses
- Events like summer parties or happy hours, depending on the space
This allows the co-working space to maximize their real estate and earn extra revenue beyond just membership fees.
Co-working might seem like a simple business model – just rent out your space and collect money. But it’s not that straightforward. Like any real estate venture, there are significant costs attached to it.
Costs of a Co-Work:
Initial Costs
Setting up a co-working space requires a significant investment, including:
- Deposits and registration fees for renting the space and business setup
- Costs for interior design, furniture, and paint
- Electrical and plumbing upgrades
- Office equipment like printers, coffee machines, fridges, etc.
Here, the upfront costs are quite high.
Operating Costs
Running a co-working space involves a lot of expenses, both big and small:
- Rent and overhead costs like electricity, water, internet
- Employee salaries and benefits
- Member perks like coffee, snacks, dishes
- Bathroom and cleaning supplies
- Printer paper and ink
- Costs for empty desks that aren’t generating revenue
All these little things add up quickly.
Running a Co-working Space
Running a co-working space can be a costly venture. The initial investment is significant, and ongoing expenses can quickly add up.
To ensure profitability, the membership revenue must be sufficient to cover these costs and generate a profit. This can be a delicate balance, as the co-working space must attract and retain enough members to generate revenue while keeping costs under control.
The tricky part is that there’s a limit to how much money a single co-working space can make. The operator can only earn as much as the total number of seats they have. Increasing prices or expanding capacity can help, but that’s not always easy to do.
It’s a high-stakes game, but for operators who can get it right, co-working can be a very lucrative business. It just takes smart planning, careful budgeting, and the ability to adapt to whatever challenges come your way.
When comparing different co-working spaces, there are several key performance indicators (KPIs) to look at.
Let’s see what they are!
KPIs to Evaluate Co-working Spaces
Now let’s understand the co-working space of India.
Indian Co-working Market
The Indian co-working market is rapidly evolving. In the next 5 years, the co-working space inventory is expected to grow by a CAGR of 22%.
However, this growth will vary across regions because:
- Metro occupancy is high with few vacant spaces
- Metro operators can charge higher prices
- Smaller cities have lower occupancy and pricing
To give you an idea, here are the differences in the size of co-working space market in Tier 1 cities Vs. Tier 2 Cities
While tier 1 cities dominate the co-working market in terms of total workspaces and square footage, tier 2 cities are quickly catching up. The flex stock in tier 2 cities is nearly 10% the size of tier 1 metros.
However, the growth opportunity in tier 2 and lower cities are increasing rapidly. As the co-working concept continues to gain traction across India, smaller cities are poised for significant growth in the coming years.
The main growth drivers of the co-working space market in India are:
- Entrepreneurial Culture: Co-working spaces in India foster creativity, innovation, and collaboration. With over 50,000 startups, they offer cost-effective, flexible solutions for businesses to scale, supported by initiatives like ‘Startup India.’ These spaces provide abundant networking opportunities and a supportive ecosystem
- Increasing Numbers of Remote Workers and Freelancers: The rise of remote workers and freelancers has increased demand for co-working spaces that foster collaboration, networking, and access to professional amenities.
- Flexibility: Co-working spaces offer flexible leases, enabling businesses to scale effortlessly. This is ideal for remote workers, freelancers, and entrepreneurs.
- Corporate Adoption: Large organizations are adopting co-working spaces to support remote workers, GCCs, and innovation hubs, offering employees greater flexibility.
Here, are the major co-working companies in India:
- WeWork India
- Awfis (listed)
- Innov8
- EFC Ltd. (listed)
- DevX
Fin Meme of the Week
