How to Recession-Proof Your Coworking Business
98.36% of coworking spaces opened after the last recession was technically over in 2009. This means that just a handful of spaces in the United States have ever experienced what it’s like to survive a recession.
This article will help coworking space owners plan ahead for the next recession.
Number of Coworking Spaces by Year Worldwide via Statista
What happens during a recession
The most critical factors that affect coworking spaces during a recession are:
lay-offs for W2 employees
an increase in freelance and contract workers
Remote workers tend to form a stable membership base for coworking spaces in strong economies. According to diycoworking’s recent research, 50% of companies pay for all of their remote workers coworking memberships. Remote workers tend to have better retention and their memberships don’t fluctuate because their incomes don’t.
If a recession comes, layoffs of these remote workers could be one of the first big challenges spaces will notice to the bottom line.
In the same vein, as full-time workers are laid off, their companies may pivot to hiring them back as contract laborers to cut their own costs (thereby not paying for the coworking membership any longer) OR the remote worker will put their skills to use as freelancers. Going from a full-time paycheck to fluctuating contract-based pay will be a huge adjustment for members. The great news is, proactive coworking communities can help members transition to new ways of working/earning. Keep reading for specific examples.
Plan ahead for a recession to affect coworking spaces
Start saving money now
The easiest thing operators can do today to protect themselves for the future is to streamline and cut costs where ever possible. This is a great time to review all vendors/spending and see if there is a lower price on staples like toilet paper and coffee so you can start taking advantage of savings before it becomes mandatory.
Start a coworking scholarship fund/create a co-op style member “staff”
Many coworking spaces have “Super Members” and can’t imagine life without them. Savvy operators will put back $25/month into a coworking scholarship fund and use this fund to supplement a few key memberships so the community doesn’t lose its best coworking evangelists to job loss.
A great way to reduce staffing costs is to offer members a discount in return for helping to run the space. Examples include having members staff the front desk for a half-day/week, giving tours, tidying up or setting up for events. A work/membership trade program allows loyal members to stay on even if their income takes a hit and it allows operators to reduce the costs of running the space.
Diversify membership offerings
One thing that has puzzled me about newer coworking spaces is their pricing. Most spaces tend to just offer full-time memberships or private offices. I think this has to be a factor of opening a space in a strong economy. They’ve never had the misfortune of selling to people who are flat broke.
My coworking space Cohere opened at the tail end of the last recession and our MOST POPULAR MEMBERSHIP was the $48/mo one day/week plan. It was a membership level that sold like hotcakes to struggling freelancers, job seekers and even students b/c it reflected about how much people were spending on coffee at the cafe anyway. Our prices have increased in the last decade but the one day/week plan is still the most popular.
Cohere still offers multiple part-time memberships and 87% of our members have part-time memberships. So rather than trying to retain a few people at full-time expensive memberships, my risk is spread out over many, many members who are paying anywhere from $19-$199/mo. In fact, this is a super strategy according to 37signals.
Alex Hillman of IndyHall has this sage advice for new space owners facing a recession:
Take a good hard look at your membership: if it's mostly startups, expect a lot of them to shrink or go out of business. Focus more on how you can connect/help/create value for small and solo businesses owners. They're the ones most likely to thrive in an economic downturn. -Alex Hillman, IndyHall
Reduce the coworking space’s square footage
It may be impossible to imagine a world where you would reduce your square footage during strong economic times but that’s exactly what Co-founder Susan Dorsch of Office Nomads in Seattle, WA just did. Their position is unique because they opened prior to the last recession and weathered it and I think their decision to preemptively shrink is brave and brilliant.
Since shedding our additional space [by half] I feel so much more confident in our ability to build our business back to full strength. And I can already tell that the community of members here feels more connected and more in tune with one another than we were just a couple of months ago. I'm so eager to see what happens next. -Susan Dorsch, Office Nomads
A drastic reduction in square footage could be a very wise move for spaces where the lease is up for renegotiation AND the space is less than 60% full. The added bonus is that reducing square footage makes the physical community more dense and bumps up the energy, which is a boon during tours and events.
Look inward at your community
Many times, new coworking owners will focus too much on the people who aren’t members and not enough attention on the people who are already there. Susan of Office Nomads has been down this road too.
From those first years to now nearly 11 years of being in business, I've learned that anytime we are feeling stressed about our bottom line the answer is to look inward. When we focus 1000% on making our place and our community awesome, we are more successful. Every time. Anything that pulls our attention from that core work of community building usually leads to our bottom line not being quite as strong. Having twice as much square footage pulled our attention away. That wasn't the intention of course (we were bursting at the seams full and were eager to see if we could expand our potential by having more room to grow), but that is how it came to be. -Susan Dorsch Office Nomads
IndyHall in Philidelphia also weathered the last recession. Alex Hillman cites the following differences for running a space in a recession vs a strong economy:
Recessions are great for figuring out who actually creates value for their customers & clients. Coworking is less of a "luxury item" during a recession. It's less about cool, and more about "how is this helping me?"
Similarly, I think people are more focused and creative during a recession. Constraints are a creative force.
It's counter-intuitive, because for job-holders a recession usually means "I might lose my job." But for independent workers, it's full of opportunity. Work still needs to get done.
Renegotiate the lease
According to Commercial Real Estate Expert Annah Moore, tenants CAN and absolutely do renegotiate their leases at renewal to achieve lower rent rates in hard economic times.
During the downturn, negotiating lower rents from tenants in a renewal was very common, especially when they could site lower costing options available from other motivated landlords with vacancy. - Annah Moore, CBRE | Advisory & Transaction Services
Also consider a mid-lease renegotiation but they are a little trickier…
Renegotiating mid lease term doesn’t happen much, as there needs to be a motivating factor/incentive for landlord to lower the rent when they have a commitment from the tenant. Cases where a landlord would consider lowering the rent mid-lease would include some upside to the landlord, most likely in the form of a longer lease term from tenant. So if a tenant has 1-2 years left at $15/SF, it wouldn’t be unheard of for a landlord to agree to lower that to $13 or $14, likely with escalators, if the lease amendment reflected a 5+ year extension to the lease. So the landlord is trading some existing income for greater certainty for the future. -Annah Moore, CBRE | Advisory & Transaction Services
Buy a building (but only at the end of the recession when prices are low)
If I were flexible enough, I’d actually kick my own ass for not buying a commercial building in 2009 when Cohere was founded and the commercial real estate sector was hurting in my town. The building we currently lease sold for $550,000 in 2010. It is currently worth upwards of $1,400,000 and if I had the guts to buy it back then my operating costs would be half what they are today.
It’s worth talking to a commercial lender NOW, while the getting is good so you’ll be well-educated if you need to make that decision later. I tried to buy our building a year ago. My offer was rejected but now I am familiar with the commercial lending process AND I know how much my family can afford should I decide to pursue it again.
Support job-seekers with special programming to preserve their sanity
Job search might be one of the toughest most soul crushing experiences ever. Weave supportive networks under job-seekers by having special deals while they are in job search and specialized programming to support their mental health during the process. A weekly accountability group like Cotivation is a ready to use program community managers can buy here for just $29.00. This one-time purchase can be used as many times as needed.
Office Nomads had a brilliant program during the last recession.
I think that one of the central elements for us making it through those tough times was staying laser-focused on our core offerings. I remember back in 2008 we ran a "Pink Slip Special" for people who had been laid off by their companies. We knew that many of those people were just going to head home to try and regroup. We knew that they'd be much more successful in that regrouping process if they were among friends and collaborators instead of their cats. So we extended our hands to help. Instead of being panicked about our business success, we focused on what it is that we knew we could do – give people a place to be and an opportunity to be part of a growing community. Turns out that not only helped our members, but it helped our success as well. -Susan Dorsch Office Nomads
Begin a list of classes to teach people how to freelance/contract
Cohere’s most popular events during the last recession were those that helped laid off workers learn how to freelance. Our primary customer was one that had recently been laid off and was now starting to freelance for the first time.
One of the greatest benefits coworking communities can give current and prospective members is access to resources that help people earn money. Great courses to offer are: Contract Writing 101, SEO for Small Business and Create a One Page Website in a Day. There’s no need to bring in the big guns to teach either. Your members are a wealth of info. Let them practice teaching lessons on the subjects they know the most about.
I’m clearly not an expert in economics. I don’t know if or when the next recession will happen or why. As a huge fan of coworking and its power to connect people and dismantle loneliness, I think coworking operators everywhere should start planning now so we don’t lose our most vulnerable members to their dining room tables when they lose their jobs.
Start by saving now and end with kick-ass programming built by and for your members that will help them earn money in new ways.
Looking to start a coworking space? Get the Ultimate Coworking Launch Sequence Workbook. It’s filled with practical advice and actionable tips to help you build a recesssion-proof coworking business.