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As Business Costs Rise, Coworking is Back in Fashion

Inflation has ripped through the majority of the world over the past year. Besides East Asia, almost every continent is averaging over 8% inflation. This has understandably been a cause for concern among the working and middle classes, with the matter of warming our homes in the upcoming winter a frightening prospect. But, it’s arguably hitting businesses just as hard.

Offices use a lot of energy to power the IT infrastructure, AC, lights, and so on. Fit-out costs have risen due to labor and commodities becoming more expensive, and are up as much as 30% in London. With these rising costs plus the construction becoming pricier, rent has inevitably risen despite interest rate rises around the world.  Understandably, fit out finance is growing in demand and many companies are resisting returning to the office.

We often think of rising prices as being a result of an undersupply or hyper-demand. Neither is particularly true for offices and rent, further proving it’s a result of cost-push inflation. The office utilization figures for a few cities are extremely low:

  • San Francisco – 38%
  • London City – 39%
  • Washington DC – 40%
  • New York – 42%

Sure, they’re back on the rise, but that’s when comparing them to the pandemic – a truly extreme moment in time that is not a useful benchmark. They’re still yet to hit pre-pandemic levels.

Whilst countries with lower inflation, like China (2.7%), top the list for office utilization. Guangzhou, Shenzhen, and Beijing all over 90% utilization – highlighting it may be more affordable to get back to the office, with steadier fit-out costs and lower energy bills. 

Of course, cultural elements are at play here, but not all businesses are encouraging employees to return to the office and hike up their energy bills unlike what the media tells us. Many businesses are instead rolling back on their use of the office and preparing for a downsize, or a full shift towards remote.

Home bills and Coworking spaces

Rising prices is a two-way street, and if businesses seemingly have less appetite to fill up large offices full of workers, we need to also consider the cost implications this has on WFH employees. Rising energy bills are up by several hundred dollars annually in Australia on average, and several thousands of pounds in the UK. Working from home will only make these bills higher.

Of course, it’s a trade-off most are willing to take. The extra usage of energy will be far lower than commuting to work. Even the lucky few that can commute on foot or via bicycle will end up paying more for coffee and lunch more often than not. 

The result has been Coworking spaces catching a second wind. For business owners, it’s becoming increasingly economical to simply hire out meeting spaces in Coworking offices as and when they need, whilst employees get the work-from-home flexibility with the benefits of having an office environment and escaping the home. Many companies are paying coworking stipends for employees.

Coworking spaces are opening up in new towns around the world, with many options per major city. This slices commuting efforts down, because employees now have more choice over where they want to work and it’s likely closer to home. 

A hybrid environment is seen as the optimal compromise that can soothe both WFH and office-life struggles. Infrastructure, security, and workflow have already adjusted to accommodating remote employees when the pandemic was at its worst. This shows that a hybrid environment is more than possible, and for both parties, may be preferable.

Statista estimates that there are around 28,500 Coworking spaces in 2022, but this number could rise to above 41,000 by 2024. We can get ahead of ourselves by claiming that the pandemic was the cause of this trend, or inflation and energy bills, but in reality, the biggest contributing factor is, and will remain to be, a cultural one. One of employee expectations regarding flexibility, affordability, and control. 

Coworking spaces pack in one person for every 100 square foot, compared to 150 to 175 square feet in the traditional American office – yet satisfaction regarding the environment is more positive, perhaps because of the flexibility aspect of not always needing to be there. So, with the rising fit out costs, energy bills, and rent, landlords themselves will be turning to ways to maximize office utilization. More employees per square feet means it’s more economical, and likely more rent per square feet as a result.

Ajay Deep

Ajay Deep is the brain behind Coworking Mag. He founded this website to help startups and aspiring entrepreneurs find a coworking space in their city. He is a successful entrepreneur who started and scaled a bunch of startups – all from shared office spaces. He has visited hundreds of coworking spaces in different countries and is now an investor in this evergrowing idea of developing new coworking spaces. You may reach Ajay Deep at ajay@authorityventures.com
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