How Big Should my Coworking Space Be?
How Big Should my Coworking Space Be?
One of the first questions you should ask yourself is, how big should my coworking space be? This will drive a lot of the decisions you’ll make about this business from whether or not you pursue this full time to startup costs, to space search to product mix and more. I am going to walk you through a framework for making this decision.
Let’s start with answering this question:
Which profile fits you best from the 5 below?
1. The Extra Space Sharer
You already rent commercial space for your own business. You have extra space that you’re not using and you’d like to recruit some coworking members and use the revenue from those memberships to help to pay your rent.
2. "Community is all I Need" Operator
You crave community and want to create a professional community that will help your existing business in some way or more community will just help you to enjoy your work more. In this case, your priority is community and you just want to break-even on the rent for the space that you and your tribe occupy. In this case, you may already have extra space that your other business is paying for or you could take on some additional space in your building and you just need to cover rent/break-even on that space because you have a non-financial goal.
3. No Pressure Extra Income
You want to create an additional income stream to augment work that you already do. You have some funding to start the space. However, you do not want partners or investors in the space. You want to keep the structure simple and startup costs relatively low. You do not have your sights set on multiple locations; however you’d like to create a space that is a solid model in case down the road you decide you want to expand the business.
For example, maybe you have a marketing agency that could be an anchor tenant and you’d like to create a coworking space in addition to your primary income which is the marketing agency. This income is adding to what you already make, but not replacing your income.
4. This is going to pay my bills
Your goal is to replace your current income or create an income that you don’t already have. Decide what your income goal is and also decide if it’s a “must-have” to pay your mortgage and save for your kids’ college or if it’s a “nice-to-have” — your family doesn’t need this income to be comfortable.
5. Optimize real estate I already own
You already have a fixed amount of space and want to know how much you can make by running a coworking space vs. doing traditional leases with a tenant.
Now that you have your profile established as it relates to your coworking space goals, let’s dig into how each profile might consider moving forward.
If you are profile #1 - The Extra Space Sharer or profile #2 - "Community is All I Need"
Say you have 10 extra desks that you think you can sell for $200/month = $2,000
Consider validating market demand first... Or just go for it.
Reach out to local professional networks.
Post your openings to Craig’s List with a description to help attract the right members.
Market to your vendors and customers.
Operations for the Extra Space Sharer
Try to keep the admin low by documenting repeatable processes, asking an office manager to double as community manager, having your members make their own coffee, do their own dishes, keep the kitchen and conference rooms clean, greet their own guests if they have meetings, etc.
Set expectations on level of “DIY” membership right from the beginning.
Tech for the Extra Space Sharer
In this case, you want to keep tech costs low because your goal is more aligned with keeping memberships low-priced and no-frills.
Here are a few things you’ll still need to consider:
Access control - Do your members only have access when your team is there and the door is open or will they get their own key/fob/code? Do your members need to leave when you leave or a member of your business team isn’t in the space?
Recurring payments - You will want a simple way to take recurring monthly payments from your members. Consider using Stripe or Chargebee. Both allow you to set up plans and enter card details and run recurring payments each month. Note: Talk to your accountant about how to handle this revenue - he/she can advise you on whether or not you should set up a separate LLC for this business.
Meeting room reservations - if you are sharing meeting rooms with your members, you’ll need a way to schedule time. The simplest solution to this is a Google Doc or a sign-up sheet outside of each conference room. If you allow external bookings, you can use meeting room management and marketing platform Liquidspace for both internal and external bookings. Or meeting room technology such as Robin if your space warrants the investment.
If you are profile #3 - No Pressure Extra Income
You don't have a minimum amount of net income that you need to make on the project per se, but you want it to be profitable. It may take a few iterations on your pro-forma to get to the right balance of net income vs. start-up budget. More start-up budget yields more net income.
For example, your ability to sell open-plan seating is probably not unlimited unless you are in a unique (likely dense, urban market with little competition - which doesn't really exist anymore).
Once you have hit the market saturation for open seating, you will need private spaces in order to grow your net income. Private/team spaces require more start-up funding. So this is where the trade-off begins.
You want to make $2,000 a month in net income on this coworking space project ($48k/year).
Scenario 1: You find a 3,000 square foot (914 meters) space that already has 10 offices, two meeting rooms and enough open space for a kitchen/cafe area, coworking seating, dedicated desks and a small community area that will double as lounge seating and event space. You assign prices to the offices and open plan work spaces. You add up your monthly costs.
In this example, make about $2,000 a month after expenses are paid. You do the math on startup costs - furniture, internet infrastructure, conference room technology, coffee equipment, etc. It’s less than $100k which is your budget.
This scenario works for you!
Scenario 2: Everything is the same except the only spaces that you can find are in shell condition and you need to do all of the construction and build out all of the offices and meeting rooms.
This cranks your startup costs up to $400,000. The Landlord will fund 1/3 of it in TI dollars, so you’re paying $300,000 to startup.
This scenario doesn’t work for you.
So at this point you might be tempted to say… "I won’t build the offices. I’ll just create 3,000 square feet of open space and sell only coworking and dedicated desk memberships. I'm willing to take the risk to avoid the startup costs."
Coworking memberships and dedicated desk memberships take much longer to sell and at lower price points. For every office that you’re selling at $1,000 to one person, you’re selling 5 coworking memberships at $200/month to get to the same revenue. Your risk of breaking even on 3,000 square feet of open space becomes much higher, especially if you are in a market with a lot of office supply at competitive prices (WeWork, Industrious, etc.).
At this point, you want to find a level of start-up costs that yields the net income that you're looking for. As they say, it takes money to make money :-)
#4 - I'm Trying to Replace my Income
If you're in this camp, we're hitting a next level of up-front investment. Coworking is no different than other businesses. It takes money to make money.
Say your current income is $100,000/year. You want to make the same amount in net income from your coworking space. That means you need roughly $8,300 in monthly net income in your steady-state. It may take 18 months to get to your steady state level depending on market factors, competition, etc.
In very rough terms, to get to $8,300 in monthly net income, you need a space that is in the 8-10,000 square foot range to hit those net income numbers. Depending on your local market demand, you may need a mix of 70/30 or 60/40 private space to open work space ratio to get to that net income. Your startup costs will vary entirely on how much the space you find matches the product mix that you need in order to hit that monthly net income number.
To build out 10,000 square feet, you may need to seek outside funding in the form of a loan from a bank or friends and family. Then you will have to factor debt repayment into your pro-forma
#5: You own your building and you want to run a coworking space as an operating business on top of your real estate asset.
In this case, you are probably focused on access to capital for the build out which you will have to pay for yourself rather than having a tenant finance some of it in the form of free or reduced rent for a period of time.
If you have access to capital, then you just want a pro-forma that yields better returns than a standard lease.
A few things to consider here:
Even if you don’t operate at full capacity, you will avoid repeated TI investment when tenants turnover and you will avoid periodic vacancies when leads are up.
Running a coworking space requires that you have operational competencies on your team - very different than real estate and property management.
As I said, this is a high level way to think about the size of a space. There are a lot of factors that go into determining the right size for your space.
