What went wrong in the UK coworking market? – A review of 2019 and outlook for 2020
WeWork Co-Founder Adam Neuman’s vision to change the world through rented office space has finally happened, with the sector experiencing increased interest and exposure. WeWork has forced traditional office landlords to re-evaluate their entire approach to business by coming up with new business models such as the hotel-style co-working space and management contracts with operators rather than long leases. Considering their present difficulties, we expect a more grounded WeWork to emerge in 2020 under new leadership and greater investor scrutiny in the sector.
Among the 3,300 flexible workspace centres in the UK, co-working operators are looking for alternative strategies to keep their companies afloat. The Clubhouse and Central Working filed for administration in 2019, amid declining profits and internal struggles. While the multinational operator, IWG, has already acquired The Clubhouse, it is also in the process of fully acquiring Central Working.
With some in the industry nervous about exposure to buildings occupied by WeWork, the company grew beyond its co-working model and built up a roster of enterprise clients with large occupier requirements, such as Microsoft and IBM who take up large spaces and sometimes whole buildings. The flexible office business model is evolving, and it is highly important to factor in the human element to property management and decision making.
The only positive outcome of the largely negative industry events in the past twelve months, is that they have created a strong discussion on the profit margin and need for more lean experiences which the fanbase value.
We predict an increase in mergers and acquisitions for 2020. IWG has already acquired the distressed co-working and flexible office providers in 2019. While previously smaller co-working and flexible office operators found it hard to compete with WeWork’s generous amount of funding, aggressive acquisition strategy, and shrewd PR capabilities, the market has now opened up and more exciting things are bubbling up. The franchising model is well established in the US market and, to gain market coverage, multinational operators will likely begin to franchise in the UK.
Property companies are spending too much money to get fans (customers) through their doors, but they are not offering any real substance or an emotional connection to keep them there. To be successful, you need to understand the voice and business requirements of your fans and work your business model around it. By utilising this approach, not only will you create repeat fans who love your service, you’ll also organically develop advocates of your business who’ll do the work for you when it comes to attracting new business.
If your fanbase wanted to feel like they were in any old corporate office, they’d have no problem finding a suitable space. The lean experience vibe is all about giving fans a sense of place, or the feeling of working as part of a community. A lean experience essentially means cutting costs wherever possible on frills that are superfluous, allowing operators to provide a greater experience at a lower-than-expected price. For example, where once you had glass bottles of mineral water, now you might have filtered water to refill stainless-steel water bottles. While the workspace may be smaller than a standard serviced office, the space is optimised and well-thought-out.
There are various reasons co-working and flexible office operators aren’t generating profit; in our latest report we discuss 10 of the most business-critical ones and the solution.Click here to access the '10 Reasons Co Working Operators Aren’t Making Profit’ report