Thread by @Cribdilla

I'm starting to get calls and questions about co-working solutions. So here's a reminder:

Co-Working existed before WeWork.
WeWork (VCs actually) destroyed Co-working as a model.

A 🧵 about the RE and operational costs in Co-working.

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Office use is estimated by square foot (sf) per employee. If you have 100 employees then multiply that by the sf estimate and you get your approx. office size need.

The traditional metric is ~185-200sf per employee and assumes some private offices, conference rooms, etc.

2/14

One of co-working's supposed appeals it the ability to "densify" offices - thereby cramming more desks into the same amount of space.

But more desks means more people and therefore more common space than a traditional office space.

3/14

And frequently a much larger common space loss factor to accommodate large foyers with coffee stations, refrigerators, kegs and eating areas. More conference rooms, telephone booths, and more & larger bathrooms.

So what does this mean?

4/14

Space per employee for co-working is likely close to 100sf per desk. You want 300 desks? You'll need 30,000sf.

Now let's back-of-the-envelope your revenue and expenses.

$500 per desk? That's $1.8M of potential desk revenue. Call it 85% occupancy so $1.53M

Great!!

5/14

Until you look at your costs.

You want that killer office location? Be prepared to for high market rent. 30k office space at $50psf is $1.5M (this is low for prime office rent)

After rent you have $30k for business operating expenses.

6/14

$120k for on-site salaries.
$60k for cleaning staff
$20k for insurance
$30k for coffee, oat milk, beer, fruit water
$25k for tech/utilities

you just lost $225k in yr 1.

7/14

You have several options.

1. Charge more rent.
This is a no brainer. You should be charging the true desk cost. In the above simplified example this means $575 per desk at 85% occupancy. But remember - there are no profits here and no margins.

So kick it up to $650

8/14

While this is good for you, your tenants are used to VC subsidized desks and $650 is "above market."

2. Cut down on amenities.
No free beer, coffee, oat milk, fruit water.

Again, good for you but your tenants have grown accustomed to the VC paid for perks.

9/14

3. Find a cheaper location w/ lower market rent.

At first glance this make sense.

But there's a tradeoff. Less optimal location, less demand, higher vacancy factor, less rent collected and, potentially, lower market rent per desk.

So the benefit is largely negated

10/14

The reality is co-working as practiced by WeWork is a VC subsidized dream that does not reflect the actual costs of the business.

Renters have grown to expect great locations, great designs, massive amenities, cheap desks.

11/14

It's like renting a Ferrari for a weekend with a Groupon code.

The renter got a fast, beautiful car at a fraction of it's actual cost but now expects to get a Ferrari every weekend for that price.

That's co-working today.

12/14

Co-working is an exciting and necessary solution for offices in the future.

But co-working operators will need to reign in their business expectations and tenants will need to understand that those desks cost more than they think.

13/14

DMs are open if you want to discuss a co-working opportunity you're working on.

And please consider following me if you like these types of threads.

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