In the fourth quarter of 2019, new coworking starts fell by 75%, likely due to investor concern during WeWork’s IPO debacle. Now, venture capitalists who invested in the sector are wondering how the industry can move forward to become more sustainable and trustworthy.
Still, some VCs are likely to continue offering up cash to operators that are yet to be profitable, which is almost guaranteed to hurt them in the future. On the other hand, there are firms within the market that have perfected their model and controlled costs, but these operators aren’t usually looking for VC returns.
It is clear that the lease-and-re-lease model adds unnecessary costs without the value, such as small offices with little privacy and cramped spaces.
The highlight of coworking spaces remains the ability to work flexibly, so it is ironic that this common business model limits customization while increasing costs.
Looking forward, coworking operators may need to look into owning their real estate instead of having multiple layers of rent. Owning the spaces will allow companies to widen their product range, offer better amenities and reduce costs to users.
The owner-operated model also allows operators to use the rent it would pay a building owner and pave a clearer path to profitability.
