Shared office space is all the rage right now, but just because it is popular does that mean it is profitable? As an investor, should you invest in a shared office space? In case you have been considering it, let’s take a look into the pros and cons of coworking spaces.
What Exactly is a Coworking Space?
Coworking is a newer term that has really risen to popularity within the last decade. It mainly appeals to telecommuters, freelance workers, remote workers or people who are self-employed. However, established businesses can also utilize coworking space to provide additional office space for employees.
Normally, coworking spaces are shared, they have 24-hour access, WiFi capabilities, and shared common areas. These spaces also usually have conference rooms or offices available to rent. Sounds great right? Why wouldn’t any investor want to get into this endeavor? Let’s explore.
There are a variety of positive reasons why one would invest in a coworking space. According to DeskMag, more than 70% of the workforce in the United States will be mobile by 2020. That means now and in the future, there will be a major demand for coworking spaces, and where there is a demand, there is room for profit.
Additionally, there is flexibility with coworking that is not available to more traditional investment properties – this brings convenience to the tenant. They do not have to worry about planning space changes as their business grows. Also, they can focus on their personal growth rather than the office infrastructure, which helps create profit for the investor. How? Well, as your coworking tenants rise in success it’s possible they could become future long term tenants of other investment properties in your portfolio. So far, coworking spaces have proven to provide successful ROI and create a steady income for investors.
With the good comes the bad, of course. There are a few cons associated with owning a coworking space. one of the major cons continues to be the short term nature of the leases. A common 10 or 15-year lease with a strong tenant creates security for investors and suggests a more predictable return. Today the short term leases may seem promising because you can easily weed out bad tenants and replace them quickly. However, that is because coworking is in high demand and the economy is generally good. During a downturn, tenants may not be so easy to replace. This can cause vacancies in your investment property, which is never a positive thing. Additionally, coworking is a business based on connectivity and includes many different people and companies, so if you do not have a good property manager who is able to keep things running smoothly, your investment can go south quickly.
Overall, most investors seem to think the positives outweigh the negatives when it comes to coworking spaces. Especially considering shared spaces are popping up all over popular cities in the U.S. and thriving. Of course, like any newer market, it will take time to find the perfect business model for coworking spaces. But, considering the surge in mobile workers and the current buzz in the market this looks like a great model to pursue.