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Four coworking space business models to consider

Growth in the coworking and flexible workspace sector is showing no signs of slowing down. The Instant Group’s latest market review  revealed that demand for flexspace was up 22% in 2022 compared to 2021, and new supply is coming into the market to meet the growing appetite.

This influx of supply is partly made up of traditional landlords diversifying into one of the fastest-growing commercial property sectors. Great Portland Estates, for instance, announced in early 2022 a £1.1 billion programme of investment to grow their flex offering from 13% to 25% of their portfolio.

These developments make one thing crystal clear – coworking and flexible workspaces are only at the beginning of their journey into the mainstream of commercial property. For commercial landlords, both small and large, this represents one of the greatest opportunities in decades.

However, there are a range of flexspace and coworking business models to choose from – spanning setting up a new proprietary brand to leasing space to existing operators. Knowing the benefits and drawbacks of each model is essential for landlords considering entering the trending, economy-transforming market.

There are essentially four main operational business models to choose from. We’re here to provide a rundown on each one so you can make a more informed choice about how to turn your commercial property into a flexible workspace.

Create your own brand

The first option is to go it alone – creating your own flexible workspace or coworking brand from scratch and operating the space independently. This option comes with the highest risk/reward proposition.

It requires the most work, placing the responsibility of creating an entire brand and business plan and operating successfully firmly in your own hands, but it also presents the greatest potential for profitability with no dilution from partners.

Despite the high investment required in terms of both capital and effort, this model is proving popular with institutional landlords and investment groups. Examples of coworking or flexspace brands set up by traditional commercial landlords include Shaftesbury’s Assemble, British Land’s Storey, and Landsec’s Myo.

These landlords-turned-coworking-brands – brandlords, we can call them – are placing a lot of faith in the continued growth of the flexspace sector. If, as seems likely, flexible working sticks around as a permanent feature of our working habits, their investment will pay off

Join an existing franchise

The most similar option to creating your own brand, joining an existing franchise and transforming your commercial property into a franchised location is an interesting business model that has the potential for great value. The franchising model has already proven to be effective in various other sectors, most notably in fast-food, and there’s a reason it’s so popular.

The benefits of joining an existing franchise compared to starting your own brand are clear to see. To begin with, you get to side-step the most strenuous and critical parts of starting your own brand, including generating an appealing concept and building a business plan. You are also able to make a more immediate impact in the market, leveraging built-in brand recognition and all of the resources franchises often get at their disposal.

But it’s not all positive – franchisees don’t have the same freedoms that independent operators enjoy, with limited creative control and decreased profitability because of franchising fees.

There are a number of brands in the coworking and flexible workspace sector that have built successful franchise models, including IWG and Venture X.  Both already have significant brand appeal and offer frameworks around which you can build your franchise location.

Pursue a management agreement 

If you have a commercial property that you want to leverage in the growing flexible workspace market, but you want to limit the exposure you have to operations, a management agreement is a potential solution.

Under this model, which is already well established in other commercial property sectors, you build a partnership with an existing operator and permit them to make use of your property as one of their locations. In other words, you strike an agreement that allows them to manage your space for you under their brand, while retaining the property as your own.

It differs from a traditional lease in that you don’t tend to charge the operator who you build the management agreement with a leasing fee. Instead, your income comes in the form of an agreed portion of the operational revenue.

This model’s appeal comes from the position it holds somewhere between independent operation and a traditional property lease. You get all of the freedom to focus your time elsewhere without having to think about running a coworking space, buy you also get renumerated with income that scales with the success of the venture.

It’s also worth noting that the decreased financial strain on the operator under a management agreement, due to the lack of rent payments, means that the venture will generally be more resilient to adverse market conditions.

Lease your property to an existing operator

Finally, if you want the cleanest cut arrangement that separates your responsibility almost entirely out of the venture, detaching you from any of the stresses of the market, a traditional lease is possible. Under this model, you simply lease the rights to use your commercial property to an existing operator for an arranged flat fee, as you would in any other sector.

There is practically no effort required from you under this model, but the reward on offer is fixed and doesn’t scale with the operator’s success. As a traditional landlord with no real stake in the venture, you simply collect rent.

If the workspace ends up being a huge success, you’ll still receive the same income. On the other hand, if the venture underperforms or fails, you’ll only suffer from limited downsides and can move on to leasing the space to another business.

Choosing the right coworking business model  

As you can tell, the differences between the business models available to commercial landlords looking to enter the coworking and flexspace sector are broad and varied. Each option offers a different set of benefits and drawbacks.

There is no right choice for everyone – which model makes most sense for you depends on how involved you want to be in the venture, your risk/reward appetite, and your general interest in the sector.

If you want to be deeply involved and invested in the success of the workspace, then becoming a brandlord or joining a franchise is arguably the right choice. If you’re looking for exposure to the growth in the market with minimal effort or involvement, a management agreement or traditional lease might make more sense.

Considering the options and weighing up their pros and cons in relation to your personal objectives can help you to decide which is the best bet for you. No matter which one you choose, though, you’ll be entering a market full of exciting developments, and one with a very bright future.