Co-working spaces need to rethink business model in wake of COVID-19: experts

Maher Arar
Coworkly owner Maher Arar says his industry is in 'survival mode' right now. File photo

Mere weeks after their Kanata co-working space finally started turning a profit, Trevor Clark and his business partner Peter Bastedo now find themselves sitting in a virtually deserted office waiting for the day when their customers can return.

“It had gotten to the point where we were really starting to rock and roll with things,” Clark, the co-owner of Head Office Ottawa, says of the glory days of February, before governments ordered businesses to close and people to stay home in a bid to stop the spread of the novel coronavirus.

“But come down the lockdown, obviously having a space where collaboration is our whole business model isn’t really so great right about now.”

Clark, a real estate agent who launched the remote workspace and meeting centre with fellow realtor Bastedo two years ago, still sees a few people milling around the 15,000-square-foot facility. Head Office Ottawa has about 15 permanent tenants with dedicated offices, and a few other members still pop in to print documents now and again.

But like most other co-working spaces across Ottawa and around North America, Head Office Ottawa has been hit hard by efforts to contain COVID-19. While most experts say the industry is likely to struggle even after businesses reopen and social distancing measures are relaxed, others argue the sector could play an important role in helping companies safely resume operations.

Overall revenues at the Kanata business are down 80 per cent since the pandemic hit, Clark says. The facility generates nearly a third of its income from hosting meetings and seminars, and with gatherings of more than five people banned in Ontario, that stream has completely dried up.

And even once restrictions start to be lifted and people slowly begin to congregate again, Clark suspects many of us will be reluctant to mingle shoulder-to-shoulder in large groups for a long time to come. 

Head Office Ottawa
Head Office Ottawa. File photo

“Just because they say we’re allowed to have 100 people in one space doesn’t mean everyone’s going to necessarily be comfortable doing that right off the bat,” he notes.

Real estate experts and entrepreneurs in the co-working space agree an industry that was gaining momentum before COVID-19 could be facing tough times ahead due to the inherent nature of the business as well as economic factors beyond its control.

“The business model does not work unless you can pack people in,” says Ross Moore, a broker at Cresa’s Vancouver office who closely follows the industry. “You’re effectively in a somewhat confined area with a lot of strangers. I think that’s just going to be a big question mark.”

Finding ways to adapt

Ottawa entrepreneur Maher Arar, who owns and operates two co-working spaces in the city under the Coworkly banner, doesn’t mince words when asked about the industry’s prognosis.

“We’re in survival mode right now,” says Arar, who closed both Coworkly locations in the last week of March. “The virus has attacked the core of our business ​– which is for people to come and work together.”

One way of adapting could be measures such as placing desks farther apart to allow for more physical distancing, experts say. But that comes at a cost. 

Less space for members means charging more to the clients who do rent cubicles, and many of those would-be customers include cash-strapped entrepreneurs and executives who’ve also been rocked by the downturn.

“Are people going to be able to write a cheque for that space?” Moore asks rhetorically. “In my experience, when people are faced with a nice-to-have as opposed to something you must have, they often just say, ‘You know what? We can’t afford it.’ I think that co-working or shared office space is going to be viewed almost as a luxury.”

Others, however, see some slivers of light amid the gloom.

“I still think the idea of collaboration won’t go away,” says Shawn Hamilton, managing director of CBRE’s Ottawa office. “We’re social animals. We thrive in groups and we draw inspiration in groups, but I think maybe the sense of density will change.”

Hamilton says co-working spaces could play a valuable role in easing workers back into the office environment once COVID-19 abates and companies start thinking about reopening. Some employers could opt to split up their teams, he suggests, allowing some workers to return to the office while others remain at home or set up in a co-working facility.

“It wouldn’t surprise me if people used co-working space to help them stage back to work,” Hamilton says. “I do think there will be a need and demand for the flexibility they offer.”

Clark agrees, saying he’s already getting calls from potential clients eager to check out his space once conditions allow it.

“They’re saying, ‘I’m going nuts working at home, and I want a membership when you guys open back up,’” he explains. “Co-working spaces may become more of a valuable thing once people realize that a lot of their staff could work remotely.”

Just how that remote work space is configured could be the key to the industry’s long-term survival, operators add.

Coworkly already devotes nearly a third of its leasable space to private offices, an amount Arar says he plans to double once he’s back in business. Separate, enclosed work areas are “where the money will be,” he says, adding that attracting well-heeled corporate clients will also likely become a bigger focus for many co-working spaces in the future. 

“I think it’s going to come down to how people adapt to what the new (reality) is going to be,” echoes Clark, who says he’s considering ideas such as adding more videoconferencing rooms to his facility. “There’s got to be new ways to do it.”