Coworking Industry Competition Heating Up

The coworking industry is getting more competitive. 

Recent examples include stories about coworking spaces offering of a year's free rent to prospective tenants, reports of coworking spaces spying on competitors and coworking spaces closing down due to growing competition.

Also, serviced office provider Regus lost one third of their market value after announcing that their operating profit for 2017 would be “materially below market expectations”. 

Regus said its earnings issue was not due to competition.

Instead, they blamed Brexit - which is now commonly blamed for any business problems that occur in the UK. Regus also blamed global “disruption” as a result of natural disasters in the US for their profit problems.

We have no idea how a couple of hurricanes in the US could have a material earnings impact on a company like Regus, but we credit them for their creativity. 

The common factor across all these articles is the coworking giant WeWork, which was profiled last week in an extensive Wall Street Journal article.

The WSJ article focuses on the various quirks of WeWork's CEO, and especially his penchant for tequila. 

But it also mentions WeWork's revenue was $436 million last year and they are exiting 2017 with an annual revenue run rate of over $1 billion. In other words, they are big and growing at close to 100% per year. 

WeWork also continues to lose a lot of money, although the article did not provide a figure. This, of course, is not unusual for high growth tech companies these days.

However, many dispute the idea that WeWork is a tech company. 

According to Frank Cottle, chairman of Alliance Business Centers, "WeWork is nothing but Regus with a paint job". He is also quoted saying it's $20 billion valuation "makes no sense".

Regardless of what you think about WeWork or its valuation, it's clear they're having a competitive impact on the coworking industry.

It's not just WeWork. The coworking industry is attracting a range of new entrants. Serendipity Labs, for example, is working with hotels on coworking franchises.

Libraries, coffee shops (like the one pictured below) and traditional commercial buildings are also adding more coworking like amenities and spaces. 

And, of course, the traditional coworking and office suite companies continue to expand.

The result of all this is increased competition. 

This competition will impact the coworking industry in a variety of ways, with a big one being increased pressure on spaces to execute well.

As the co-founder of the well known DC coworking space 1776 point out in her essay What's up with 1776 and Benjamin's Desk, coworking is not easy. Key quote:

Running a coworking business is hard work. Rent, overhead, staff, events, programming all add up quickly. Startups come and go on a daily basis as they get funding or run out of cash. It is critical to have a model that is both economically sustainable and excellent in its delivery of support, resources and community. It’s hard to do this.

increasing competition is normal in growing industries. The downside is some industry participants get hurt or even go out of business. 

We will likely see more coworking space failures over the next couple years. But we will also likely see continued growth. And, of course, coworking customers will benefit.

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