Market Insight

The co-working conundrum

May 29, 2018

At a recent seminar the hosts posed the question whether the ‘office was dead?’ with the conclusion, in part that, ‘it wasn’t dead but just smells a bit funny’.

If you follow the press documenting the gargantuan expansion and growth of ‘co-working spaces’ not only in London but across the UK, you may jump to the conclusion that traditional office space may have had its day.

With the co-working brand We-work predicted to eclipse London’s biggest office occupiers at 2.4M sq ft and Savills predicting serviced office take up outside of London to reach half a million square feet in 2018 (a 15% increase on 2017), the growth of ‘space as a service’ continues at an incredible pace.

Just look around Reading now, as an example – we have GROW at Green Park; FORA soon to open in several floors of the iconic Thames Tower; Work-life at The White Building; the Regus brand Spaces on Greyfriars Road and now Central Working at R+. Numerous smaller independent operators are also rapidly expanding to fill a perceived need for accommodating millennials, who are allegedly against working in drab traditional office environments and prefer somewhere social with free beer on tap in the office on a Friday.

Definition of co-working

At its heart, co-working as defined by Wikipedia is ‘a style of work that involves a shared workplace, often an office, and independent activity. Unlike in a typical office, those co-workers are usually not employed by the same organisation and are typically attractive to work at home professionals, independent contractors/scientists or people who travel frequently who end up working in relative isolation’.

The cost of hot-desking

Unlike a traditional lease, co-working spaces are in the main based on a membership model not unlike a gym whereby you pay a certain amount each month for the right to use a desk and then you may pay extra for additional services – in a gym it may be a specific fitness class, in a co-working space meeting rooms or printing.

Depending on the individual location and demand, membership prices for a hot-desk are somewhere between £250 and £750 per month plus VAT and may also include some credit towards meeting room usage, printing and the ability to hire a locker. If you want a dedicated desk that will be available each time you visit the office that will cost upwards of £400 a month plus VAT and you may also get the exciting extra benefit of some storage.

These costs are not dissimilar to the desk rate of a serviced office but do not have the benefit of the contemporary fit out, yet are a significant investment if your previous ‘office’ was your spare room, your garden shed or your local library or coffee shop. Let’s do the maths – for each employee at the lower level £3k a month, at the upper level in areas of central London £10-£12k per annum for each hot desk.

Why is this concept so popular?

In the first instance there is an incredibly low set up cost and with a monthly membership arrangement seen as incredibly flexible especially if, unlike certain gym memberships, you can cancel at any time rather than being tied into a 12-month contract. There is no fit-out, no removals, no dilapidations or rent reviews to worry about (in the traditional lease sense).

Then there is the social aspect, the buzz words of collaboration, networking, community, creativity – bouncing those ideas of another like-minded entrepreneur in much idolised ‘water-cooler’ moments or when having a beer in the office on a Friday. It all sounds fantastic and ideal – much better than plugging in your laptop in your spare bedroom after taking down the ironing board and moving the piles of washing.

Then there is the environment, the instant Wi-Fi connectivity, those funky chairs; task-oriented working; big wooden tables; post-industrial recycled lamp shades and a coffee machine you would die for in your kitchen if you had the space. This is cool, this is now, this is where interior design and unlimited budget affords someone space away from their studio apartment or the family interruptions of working in their home environment (we all remember the expert on North Korea on BBC News).

The downsides

This sounds ideal – why aren’t we all doing this?

And herein lies the rub – for anyone who works in a one company office environment that has moved to open plan users complain of distractions; of noise; of complaining about people eating food at desks or playing music – the inability to control their environment. In your own environment you can be sure of confidentiality, of preservation of intellectual capital of security. There have also been reports of unstable and insecure Wi-Fi and internet connections leaving users at risk.

All of these things can be managed if you are a sole trader or very small business. What is more worrying as advisers, is the growing trend of larger corporates taking space in co-working spaces to allow a more transient workforce and boost recruitment – but what does it do to retention and corporate brand? A study by Gallup in 2017 showed that workers who are outside the office environment for less than 20% of the time are the most engaged, and engagement tailing off rapidly the more an individual works at home or in another location.

And then there is cost over time – what is the tipping point for the growing business? Taking fairly typical office costs including rent, business rates, service charges, fit out and dilapidations, a traditional office lease starts to become cheaper than permanent hot desks at approximately 2.2 years, and for unallocated desks at just over 3 years.

However, we are not comparing apples with apples. If you begin to make allowances on traditional office space to say you are going to apply agile working in your own environment and provide a desk ratio based on numerous studies that 2/3’s of desks are occupied at any one time, therefore more intensively using your own space, traditional space begins to become the cheaper option within 18 months.

What office is right for you?

There is no doubt that flexibility is increasing and improving working environments is essential to recruitment and retention. However, when thinking about whether co-working is right for you and your business answering some key questions around staff growth plans, confidentiality, employee engagement, business longevity, need for collaboration and security will mean your business will benefit in the long run.

Long live the future office – whatever form it takes.

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