Coworking spaces have become very popular, especially after the pandemic, now that remote work is normal. This has led to a boom in the coworking space business, with many new locations offering furnished offices and virtual coworking spaces to professionals looking to go remote without the cons. However, has this boom been profitable, or are we looking towards a bust that might threaten the coworking space industry? Let’s look at how profitable a coworking space is and what the costs, profits, and when you get to the breakeven point in a coworking space business.
The research on how profitable a coworking space business is first started way back in 2018, when freelancers began going to shared coworking spaces, seeing the many benefits it has. Since then, the market has grown a lot, and many big names in the coworking space business have emerged, which means that not only is the coworking space business profitable, but the returns must be good. Because this particular sector is still on the rise. Let’s look at the question now.
How profitable is a Coworking space?
Plenty, if you look around and see how many shared coworking spaces have opened up in the past few years. Again, with the rise of remote work in the tech sector, and how many of these remote workers wanted to get away from the confine of their homes, coworking spaces shot up in popularity and the revenue followed. This meant that the coworking space business had officially begun its boom phase.
As for profitability, coworking spaces have historically proven to be very profitable. Since the costs of operating a coworking space are fixed and do not change often, the overall cost stays the same. However, with new and improved services, flexible office options, and customization options, the earnings potential gets high. High enough to the point where most coworking spaces before 2020 reached their breakeven after around 6 months of operation, The time has now been reduced to only 3 or 4 months, since more and more people are now beginning to enter this particular sector.
Since operating costs for a shared coworking space are fixed and the revenue generated can vary, this can also usually present a problem, where during the initial phases, the revenue is not enough to cover the major expenses like salaries, rent, and utility bills. This initial period needs to be covered by capital investment; cash inflow from investors who understand the profitability of the coworking space business and invest in the space. Once the space has taken off, the profitability starts to increase, to the point where it churns out its first profit, and then onwards, it’s smooth sailing for the coworking space.
The profit margin for operating a coworking space varies and depends on a lot of factors, the primary being the operating costs like rent and salaries. According to research, while the profit margin itself is usually slim (around 10 to 15 percent), the volume of the coworking space business makes it feasible in the first place to open up. Plus, as the coworking space gets more and more popular, revenue generation for the shared coworking space will increase and the costs will stay the same, taking your profit margin upwards in the excess of 20 to 25 percent, sometimes even north of 30 percent, making a coworking space an excellent and profitable business.
Coworking spaces: major costs
Some of the major costs, as discussed above, will factor into how profitable your coworking space business is. However, since these costs are usually fixed long-term, the effect they have on the revenue generation potential isn’t negative in the long term. Let’s look briefly at each coworking space’s major cost to help explain them further.
The biggest cost in the coworking space business. If the premises of the coworking space have been rented, then that will be the biggest cost of running the business. Monthly or weekly payments will have to be made regardless of revenue generation, and location, size, and occupancy will all factor in how much rent is and how frequently it needs to be paid.
In the second place, comes the salaries that will be paid to the employees working for the coworking space. Obviously, a complete staff will be needed to run the space; this includes everything from janitors to a manager, who will be overseeing the daily operations of the coworking space. These will also be paid out regularly regardless of the profitability of the coworking space, but there is breathing room here since the staff headcount can be lowered if things do not pick up at first.
The third major business expense is going to be utility bills like electricity, gas, water, and the like. Unfortunately, with global inflation, the rates for electricity and gas have been hiked, which means that this aspect of costs will also be a little draining for the financial feasibility of the coworking space business. However, good conservation practices can make a lot of difference in keeping these costs down as well.
When does a coworking space hit breakeven?
Let’s start with breakeven first. What is breakeven: It’s the point where a business first turns a profit; the point where the revenue exceeds the costs of operating a business, even if by a cent or a dollar. As such, this is a crucial point in every business, be it coworking space or any other: the sooner your coworking space business gets to the breakeven point, the better. This means that you can start turning a profit earlier and start expanding the business.
As for coworking space business, breakeven, on average, usually occurs within the first six to eight months, as per research. A lot of factors are involved in this, again, including location, clientele, operating costs, etc. If, for example, operating costs are low while clients keep on coming for the long term, your coworking space business will hit breakeven very quickly and will start making you profit before six months. Several coworking spaces have hit their breakeven in as low as three months under exceptional circumstances.
However, as a rule of thumb, expect a coworking space business to hit breakeven in the first six months if all factors go ideally. From this point on, your coworking space business will earn you a profit, which can then lead to further expansion of the business.
Profits from a coworking space business
Several factors determine what kind of profits a coworking space will bring in. The primary one is operating costs; should they be high, profit margins will be slim. However, once your coworking space business starts to pick up, you will have more and more baseline profit from the revenue and you can then spend that on the expansion of your coworking space, including new in-house features and any new locations.
With substantial profits, expansion of your coworking space can be of two types: in-house expansion of features and offerings or the physical expansion to another location, essentially in the manner of a chain. While coworking spaces only need a few things, many high-end coworking spaces offer a lot of features that others may not: well-furnished and stocked gaming areas, recreation zones, and refreshment options that keep the clientele happy and glued to your coworking space. Aside from these, the rest come standard.
On the other hand, physical expansion from your profits will mean opening up a new location in another place to ensure a second revenue stream. Once the first location becomes profitable, people start focusing on opening up a second location, usually in a place near tech centers or tech capitals to ensure that people do come and rent coworking spaces for work. Both of these options are feasible and while the second one will bring you a new revenue stream, further polishing the already existing coworking space will allow you to reap even more profit from the primary coworking space.
ZEMLAR: The last word in coworking spaces
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Furthermore, ZEMLAR also has a zero-hidden fee policy, which means that what you pay for is what you get. There are no hidden fees, operating fees, or taxes excluded in your plan, meaning that your experience goes beyond just having a productive time at the Coworking space; it’s cost-effective option that boasts all the benefits of the Coworking space of the 21st century.