A New Battle on the Horizon of the Billion Dollar Co-Working Space Industry

14 July 2016

Let’s begin with a snapshot of the co-working space market

Does work really need to be connected to a specific place and time? It is our firm belief that creativity does not need an office; nor does productivity for that matter. It is purpose, meaningful work and an active exchange with as many people as possible that drives creativity and productivity. Not fixed infrastructure, stagnant teams and rigid office hours. In fact, our own business model builds on networks not offices. While our Swiss clients still need to embrace the “no office concept”, the shared office movement has seen huge growth and momentum across the globe.

Think of co-working spaces like a members’ club. For a monthly fee you gain access to dedicated spaces and a curated network. Shared office space hits the sweet spot between home office and conventional office space. While home office can be a distractive and lonely affair, co-working spaces offer a more social work environment. Compared to conventional offices though, it is very much plug and play. Spaces come furnished, without lease contracts let alone the admin around cleaning, IT, security and maintenance.

If you have not taken notice of the co-working phenomenon or think it is a fad – here are some facts. The Global Co-working Survey 2015-2016 estimates there are 7’800 existing co-working spaces. By the end of 2016 this number should rise to 10’000, with more than 500’000 members worldwide (Deskmag, Carsten Foertsch, Nov. 2015). Projections of the global mobile workforce forecasted an increase of 32.5% from 2014 – 2020. In other words, 1.75 billion people will work beyond fixed office structures by 2020 (Strategy Analytics, Nov. 2015). There are more than 800 co-working locations in London alone, growing at a rate of 10% a year. This is three times more than in New York according to a report by Cushman & Wakefield (The Times, May 2016). Since WeWork valued at $ 16 bio., co-working spaces no longer need for justification. Quick and affordable conversions make co-working an attractive concept for vacant office buildings and the real estate players of this world have taken notice of the “office as a service” (OaaS) segment.

The current trend will likely continue to fuel the birth of new co-working operators & brands. The mobile workforce is predicted to grow and the majority of corporates still inhabit conventional offices which represents a huge untapped segment. The first mergers and acquisitions have led to companies following a multibrand strategy. Regus recently acquired Kora and Spaces to tap into various segments, from corporates to freelancers from startups to SMEs. Having said all this, a simple Google trend analysis undermines the growing interest in this topic.

“You need to look at offices as a service in the same way as software: hardly anyone buys servers anymore, they use cloud computing” Duncan Logan, Rocket Space.

Co-working spaces are not only influencing real estate, we think it might well be the next big thing in hospitality. To provide space as a service is at the core of the hospitality industry. Hence it does not surprise to see the first hotel chains offering space as part of a co-working pool. Marriott recently partnered with Liquidspaces, Westin launched their own platform and Soho House now also comes in the shape of Soho Works. And as if this were not enough we see the first brands venturing into a fusion of spaces combining “work and life”. The Collective in London and WeLive are just two examples. Further WeWork recently moved into the same building as the first Zoku Hotel in Amsterdam and Vision Apartments opened it’s first mixed use concept featuring serviced offices this July in Zurich.

How to prevail amidst this increasingly competitive landscape?

The battle for co-working members has not begun as in most markets demand still exceeds supply. In cities like Zurich the choice is still limited to 4-5 spaces hence seekers of working space simply opt for the most convenient location. To stay ahead of the game once supply increases, there will however be a growing need for differentiation. Operators and developers will need a unique experience design strategy that covers the following four aspects:

Product & Operations

The physical realm your members dive into needs to be in line with the culture and the community you are trying to curate. The basics such as Wi-Fi, heating, lighting, seating need to fuel work efficiency and make people feel at ease. You need to think beyond the basic prerequisites however. Similar to a hotel, think about the customer journey and all the touch-points along the way. This entails the design-, spatial- and music concept, food and beverage, stationary, community apps, events and staff interaction. And that is not all, the list of what might facilitate people’s working life and in return differentiate your product can be long, especially once you think beyond bricks and mortar, taking into account insurances, gym memberships, discounts on travel etc.

Brand

The provided physical space is just one part of the value proposition and certainly not the part that will ensure cash from coming in. In order to build a sustainable brand experience, you need to think beyond. Create a brand positioning that builds on strong and relevant values. Craft compelling stories and a coherent verbal and visual universe that convey these values. Unlike more traditional office rental companies, WeWork nurtures a carefully designed brand experience addressing the aspirational values of it’s target segment. This is especially crucial for individuals that no longer decorate themselves with employer brands (freelancers, startups etc.) and seek for communities to belong to. WeWork claims to be the space for members to create their life’s work. It is this compelling brand story and vision that has led the company to a $16 bio. valuation within 6 years (FYI, they do not own any of their real estate). While the valuation itself is debatable keep in mind that “Startups don’t turn into unicorns without a good story attached” (Nitasha Tiku, Senior Editor, BuzzFeed, Oct 15’).

Distribution

It is the sum of all interactions (analog and digital) that will define your members experience. As such be sure to think about all relevant channels that can fuel your reach and increase engagement with potential members. From your own website and booking options, to digital marketing including social media and maybe even partnerships. One of the biggest assets of co-working spaces is the community that people buy into. If the choice of a co-working space is no longer based on location, the decisive factor will become the network that people aspire to be a part of. So how can you increase the value of such a network? Typically there are 2 factors, quality and scale. Think of multiple locations. If scalability cannot keep up with your demand think of possible affiliations with other brands. Entice corporates to enter the co-working space through partnerships. Most importantly, engage on channels that are relevant to your target segment.

Where do you stand while the co-working industry is in full throttle to become a multi-billion-dollar industry, giving rise to derivative products and services, new brands and affiliations in real estate and hospitality? Which co-working first mover will prevail in a market like Switzerland?

Whatever your answer may be, keep in mind that along with a growing competition there is a need for differentiation and while the physical product is important, focusing on design only is not sustainable. People want to feel part of an aspirational community not an infrastructure. Crafting such desire and sense of belonging requires an experience design strategy that spans across all aspects of product, operations, brand and distribution.

Drop me a line at anil@creativesupply.ch, I would love to know your thoughts. With our network of creatives, we operate from co-working spaces from around the globe.

Picture credit: Copyright MINDSPACE

Data source graph: Google Trends