Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
Coworking spaces have become an essential solution for freelancers, startups, and small businesses looking for flexible workspaces.
But how does the coworking space business model really work, and what does it take to build a profitable one?
Here’s everything you need to know, from the startup costs to how coworking spaces actually make money, and what it takes to stay in the game.
What is the Coworking Space Business Model?
Simply put, coworking spaces are shared workspaces that businesses, freelancers, and remote workers can rent on flexible terms. These spaces typically offer a variety of memberships — ranging from hot desks (shared workspaces) to private offices — and include key amenities like high-speed internet, meeting rooms, and communal areas.
The idea is to create an environment where people can work together in an inspiring, professional setting without the high cost and commitment of a traditional office lease.
The model works because it’s flexible. Whether you need to book a desk for a day or rent an office for a team, coworking spaces cater to all kinds of businesses — from freelancers to small startups and everything in between.
How Much Are the Startup Costs of a Coworking Space?
Starting a coworking space isn’t cheap, and the costs depend on several factors like location, size, and what kind of amenities you offer. On average, startup costs can range from $50,000 to $200,000, though it can go higher in big cities or for larger spaces. About up to $100,000 is the average.
Some of the main expenses include:
- Property Costs: This could be rent or purchasing the property. Prices vary depending on location, the size of the space, and the overall market.
- Furniture and Equipment: You’ll need desks, chairs, meeting room furniture, internet infrastructure, printers, and more.
- Renovations: Many coworking spaces need some form of renovation or interior design to make them inviting and functional.
- Staffing: You’ll need staff to manage the space, help members, and maintain the facilities.
- Marketing: Getting the word out to attract your first members is essential and can be costly at first.
It’s a hefty investment upfront, but with the right planning and location, it can pay off in the long run.
What Are the Ongoing Costs in Running a Coworking Space?
Once your coworking space is up and running, there are ongoing costs to keep everything operating smoothly.
The main recurring expenses for coworking spaces include:
- Rent or Mortgage Payments: This is likely to be your largest expense, especially if you’re in a high-demand area.
- Utilities and Maintenance: Electricity, internet, cleaning, and general maintenance add up.
- Salaries: You’ll need to pay your team — community managers, customer service reps, maintenance staff, etc.
- Marketing: To keep your membership base growing, you’ll need ongoing marketing efforts.
- Technology: Maintenance for things like printers, internet upgrades, and other tech tools for members.
It’s crucial to factor in these costs when pricing your memberships and ensuring your space remains profitable.
More stories for you
Is Coworking a Good Business Model?
Yes, coworking can be a very profitable business model — provided you can keep up with demand and manage your costs effectively. The demand for flexible workspaces is high, especially with more people working remotely or freelancing.
However, there is competition in the market, and it’s important to find ways to stand out and offer something your competitors don’t. If you can do that, coworking spaces are definitely a good business to be in.
Approximately 46% of coworking spaces are profitable, meaning less than half of new coworking spaces will achieve profitability. In comparison, about 65% of small businesses across various industries turn a profit, making profitability less common in the coworking sector. This means owners may need to work a bit harder in this sector.
How Do Coworking Spaces Make Money? What Are Their Revenue Streams?
Coworking spaces typically generate revenue through a variety of streams:
- Membership Fees: The main source of income, with different pricing models based on how much access a member needs (hot desks, private offices, etc.).
- Event Hosting: Coworking spaces often host workshops, seminars, or networking events and charge a fee to attendees.
- Meeting Room Rentals: You can charge extra for members (or non-members) who need a private space for meetings or presentations.
- Additional Services: Many coworking spaces offer add-ons like printing, phone answering services, or virtual offices to boost their income.
- Private Office Rentals: Private office spaces are often in high demand and can be rented out at a premium.
What is the Average Profit Margin of Coworking Spaces?
Coworking spaces usually have profit margins ranging from 10% to 20%. The average seems to be around 19.7%. This can depend on location, the level of services offered, and occupancy rates. If you’re able to keep operating costs low and achieve high occupancy, your margins will be on the higher end. Large coworking spaces with more offerings tend to have better margins, as they can take in more revenue.
Which Coworking Spaces Are Most Likely to Be Profitable?
Coworking spaces that offer something unique or cater to specific industries are often the most profitable.
Consider these factors that impact coworking center profitability:
- Prime Locations: Spaces in busy business districts or creative neighborhoods are more likely to succeed because of the higher demand for flexible office space.
- Niche Offerings: Spaces that cater to particular industries (e.g., tech startups or creatives) can command higher prices because they offer tailored services.
- Large-Scale Spaces: Bigger spaces that provide a variety of services, including private offices, meeting rooms, and event hosting, tend to attract a larger, more diverse customer base.
These spaces can charge more and offer more, leading to higher profitability.
Which Coworking Spaces Are Least Likely to Be Profitable?
On the flip side, coworking spaces that are located in less-than-ideal areas or fail to stand out may struggle.
Common issues that hurt profit potential include:
- High Operating Costs: If your rent is high and you’re not filling the space, it can be tough to turn a profit.
- Lack of Amenities or Services: Spaces that don’t offer much beyond a desk and Wi-Fi may not be able to compete with other, more feature-rich options.
- Poor Location: If your space isn’t in a high-traffic or business-heavy area, it may struggle to attract members.
Without a solid customer base and competitive pricing, these spaces could face profitability challenges.
How to Make a Coworking Space Profitable
To run a profitable coworking space, it’s important to:
- Offer Flexible Pricing: Provide a variety of membership options to cater to different needs, from freelancers to small teams.
- Focus on Customer Experience: Members are more likely to stay and recommend your space if they enjoy the experience. Offer excellent customer service, a great atmosphere, and top-notch amenities.
- Maximize Space Utilization: Keep occupancy rates high and space use efficient. The more people you can fit in your space, the higher your profits.
- Diversify Your Income Streams: Offer add-ons, such as meeting room rentals or events, to boost your bottom line.
- Build a Community: Foster a strong sense of community and networking opportunities. Happy, engaged members are more likely to stay long-term.
Key Coworking Space Profitability Challenges
Running a profitable coworking space comes with its challenges, including:
- Competition: The market for coworking spaces is crowded. It’s essential to offer something unique to stand out.
- Rising Costs: Rent, utilities, and staffing costs can quickly eat into your profits, especially in larger cities.
- Member Retention: While attracting new members is key, retaining them is just as important. Make sure to offer value and maintain strong relationships.
When Does a Coworking Space Typically Break Even?
Most coworking spaces break even between 12 to 18 months after opening, though it can depend on how quickly you fill the space and keep things running smoothly. With a great location and solid marketing, you could hit that sweet spot a lot sooner.
The key to really making your space thrive, though, is diversifying your revenue streams and building a tight-knit community of members who keep coming back for more.
FAQ
1. Are coworking spaces profitable?
Coworking spaces can be profitable, but about 46% of them reach profitability. The key to success is location, efficient operations, and strong marketing. With careful management and customer retention, coworking spaces can generate steady income despite competition.
2. How long does it take for a coworking space to break even?
Most coworking spaces break even between 12 to 18 months. The timeline depends on how quickly the space fills up and how efficiently it’s managed. A prime location, strong marketing, and good community engagement can help reach profitability faster.
3. How do coworking spaces make money?
Coworking spaces generate revenue through membership fees, event hosting, meeting room rentals, additional services like printing, and private office rentals. Diversifying these revenue streams helps ensure long-term profitability beyond just memberships.
4. What are the key challenges in running a profitable coworking space?
Coworking spaces face competition, rising operational costs, and the need to retain members. To remain profitable, spaces must differentiate themselves, keep costs in check, and create a strong, loyal community while managing high rental and staffing expenses.
5. What is the average profit margin for coworking spaces?
The average profit margin for coworking spaces is typically between 10% and 20%, with the average being around 19.7%. Margins depend on factors like location, services offered, and occupancy rates. Higher occupancy and efficient cost management lead to better profits.
