Can coworking spaces be profitable businesses, and how?

Co-working space is a great concept due to it's inherent appeal to the dynamic of the start-up culture. However, the recent influx of all these start-ups is mostly due to an increase the in the amount of VC and Private Equity funding.

Another factor which influences the appeal and popularity of these spaces is the flexibility of not having to commit to long term leases. Many co-working spaces such as NextSpace and pariSOMA work with memberships that can accommodate even the most leanest and startups with the lowest capital.

That being said, whether or not a co-working space can be profitable is relevant to several other factors. One would have to predict the maximum effective use of the space (# of desks, offices, conference rooms). You have to calculate a pro-forma of what the projected income of the space will be once you've hopefully reached maximum capacity and how much the difference is between your projected profits and your actual overhead.

In the city of San Francisco, it doesn't really make sense to lease a space for more than $25/square foot annual if you can't achieve at least $45/SF in income from all the members. Especially if you want to provide premium amenities such as free printing, faxing, copying, internet, kitchen, food, coffee, events, etc....

There are many factors that can influence the profitability of the business. However, there are some spaces that run very lean such as Citizenspace and due to the current demand for such space are making great profits.

In the event that you are interested in researching more or learning about how to go about making these assessments please feel free to contact me. Some people you may wish to talk to are Laurence Pelosi co-founder of Hatchery and Julian Nachtigal with pariSOMA, and Rebecca Brian with NextSpace. They can provide valuable experienced knowledge about this concept.

The first main revenue stream is subletting the space:
  • Private offices - usually, you want to have couple of bigger so called anchor customers that pay the bills.
  • Dedicated desks - fixed membership for a desk that usually gives you good return.
  • Hot desks - flexible membrship that if you leverage right can give you even greater return as you can oversell your space.
Usually, having a balance of the 3 types have good results.
The second revenue stream is by subletting the space for events. This has the following benefits:
  • High return on the sublet - being short turn for a day / night makes it higher priced
  • Marketing for your memberships and desk offerings
Third revenue stream is meeting room bookings. Usually, spaces offer booking a meeting room to external, non-members.
The last but probably the most important revenue stream is by leveraging your community. Having many users on site, or online can be very beneficial. By having many members you can always be creative and make revenue from it:
  • Offer additional services like IT infrastructure for example
  • Have cafe, bar or restaurant and offer food and drinks
  • Organize paid events - either business or fun related

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