Are Coworking Spaces Profitable?
In the United States (US), coworking spaces have grown tremendously over the past decade, particularly with the rise of remote and hybrid working models.
However, the main question remains: Are coworking spaces profitable?
If you’re looking for answers, you’ve come to the right place! Explore this blog to learn about the US coworking space market, key profitability factors, and insights for anyone considering investing in this growing sector. We have also discussed the market trends, membership models, and operational costs to understand how coworking spaces generate revenue comprehensively.
The Coworking Space Market in the US
The US coworking space industry has experienced rapid growth. According to Statista, the number of coworking spaces in the US grew significantly, from 4,000 in 2017 to over 6,200 by 2022, representing a 55% increase. And it was expected to have 41,975 coworking spaces worldwide by the end of 2024.
The demand for flexible office spaces surged, especially during and after the COVID-19 pandemic, as businesses moved toward hybrid or remote work policies.
Key Cities for Coworking Spaces in the US
- New York City leads the charge, with over 300 coworking locations. As the US business hub, there is a significant demand for flexible workspaces catering to entrepreneurs, remote workers, and large corporations.
- Los Angeles and San Francisco are also major players in the coworking market, especially with the growing tech sector. The remote work trend continues to rise in these cities, creating more opportunities for coworking space providers.
- Chicago and Miami are emerging as strong coworking hubs, with increasing interest from freelancers, startups, and remote workers looking for flexible office space.
The Demand for Flexible Working Spaces in a Post-Pandemic World
The pandemic significantly transformed the American workforce. Remote work, once a rarity, became mainstream, and many companies now embrace hybrid working models. A 2022 survey by Gallup revealed that 54% of US workers worked remotely or in hybrid arrangements. This shift led to an increased demand for flexible coworking spaces.
Coworking spaces have filled this gap by allowing businesses to scale up or down quickly without committing to long-term leases or investing in infrastructure.
Types of Businesses Using Coworking Spaces in the US
In the US, coworking spaces are not just for freelancers anymore. The user base has diversified significantly, with various types of businesses taking advantage of flexible office environments:
- Startups: Tech startups, in particular, flock to coworking spaces for the affordable and scalable workspace options.
- Freelancers: Freelancers, including writers, designers, and consultants, often choose coworking spaces for the community and networking opportunities.
- Remote Workers: Many employees work remotely full-time, so coworking spaces provide a professional space outside the home to conduct business.
- Small to Medium Enterprises (SMEs): Many small businesses choose coworking spaces to avoid the long-term financial commitment of traditional office leases.
This growing diversity in users means coworking spaces have the potential to serve a wide range of customers, increasing the opportunity for investors to generate revenue.
Profitability Factors for Coworking Spaces
The profitability of coworking spaces depends on several key factors. Let’s examine some of the most important elements that influence whether a coworking space is a worthwhile investment.
1. Location
In the US, office location is one of the most essential profitability factors. Major metropolitan areas such as New York, Los Angeles, San Francisco, and Chicago command high rental prices but also provide access to large markets of potential customers.
For instance, a hot desk in downtown Manhattan can cost anywhere from $400 to $600 per month, while more affordable areas like Dallas or Denver can charge $200 to $300 per month for a similar setup.
However, a strategically placed coworking space in a growing neighborhood or near a business district can be highly profitable even in less saturated markets. Location drives demand, so selecting the right area is crucial for success.
2. Membership Models
Coworking spaces generate revenue through various membership models. These can range from flexible hot desks to long-term office leases.
The most common pricing structures in the US include:
- Hot Desks: A hot desk is a shared workspace where members use an available desk on a first-come, first-served basis. Depending on location, hot desk memberships typically range from $150 to $500 per month.
- Dedicated Desks: These are reserved spaces for individuals who need a permanent spot. They typically cost between $400 and $700 per month.
- Private Offices: Private offices are the most expensive option for businesses that need a dedicated, enclosed space. Depending on the office size and location, they can range from $1,000 to $5,000 monthly or more.
Coworking spaces can cater to different customers and ensure a steady revenue stream by offering various membership options.
3. Operational Costs
Managing operational costs is essential for profitability. In the US, some of the most significant costs associated with running a coworking space include:
- Rent: Commercial real estate in high-demand cities can be expensive. In New York City, for example, the average rent for coworking spaces can be around US$650, which can significantly impact profit margins.
- Utilities and Internet: High-speed internet, electricity, water, and maintenance are ongoing costs that must be factored into pricing.
- Staffing: Staffing needs include receptionists, office managers, cleaners, and maintenance personnel.
Coworking space owners can maximize their profit margins by effectively managing these costs. Many successful coworking spaces also offer additional services to supplement revenue.
4. Additional Revenue Streams
To boost profitability, coworking spaces often generate extra income by providing additional services such as:
- Meeting Rooms: Renting out meeting rooms to non-members can provide an additional revenue stream. Depending on the location, these spaces typically charge $30–$250 per hour.
- Events and Workshops: Hosting networking events, workshops, and seminars can provide additional income while also helping to build the coworking space’s community and brand.
- Printing, Mail Handling, and Refreshments: Charging for these add-on services can further boost revenue.
These additional offerings can help coworking spaces stay profitable, especially during lower membership enrollment.
5. Occupancy Rates
Occupancy is a key driver of profitability. The higher the occupancy rate, the more income a coworking space generates. An occupancy rate of 75% to 85% is generally optimal for profitability.
For example, a coworking space with 50 desks that maintains 40 occupied desks consistently will generate a significant portion of its potential revenue.
High occupancy rates are often achieved through effective marketing, strong community-building efforts, and an excellent customer experience.
How Competitive is the US Coworking Space Industry?
The US coworking market is highly competitive, particularly in major cities. Industry leaders such as Esperson Flex, Venture X, Focus, and SHARED dominate the market, but the rise of niche coworking spaces has allowed smaller providers to carve out a space.
For example, some coworking spaces cater specifically to tech startups, women entrepreneurs, or creative professionals. These niche spaces provide specialized services and a community that attracts like-minded individuals.
New investors can differentiate their coworking spaces by:
- Focusing on a Niche Market: Specializing in certain industries or business types, such as coworking spaces for tech startups or eco-friendly spaces, can attract a loyal client base.
- Building Community: Coworking spaces that foster a sense of community, with regular networking events and shared resources, tend to retain members for longer periods of time.
- Providing Value-Added Services: Offering business coaching, mentorship programs, or access to venture capital can create additional value for members and boost retention.
Financial Considerations and Investment Risks
Before investing in a coworking space, understanding the financial considerations and potential risks is critical.
Initial Capital Investment
Opening a coworking space in the US typically requires a significant initial investment. Depending on location, size, and amenities, the startup costs can range from $100,000 to $500,000. This includes securing a location, furnishing the space, and covering initial operational expenses.
Understanding ROI
The return on investment (ROI) for coworking spaces can vary. Typically, it takes a few months to break even, depending on the space’s location and initial occupancy rates.
After breaking even, a coworking space can generate solid profits, especially with high occupancy rates.
Risks for Investors
Investing in coworking spaces does come with risks, including:
- Economic Downturns: A recession or economic downturn can reduce demand for coworking spaces as businesses cut back on office costs.
- Competition: The rise of new competitors or aggressive pricing by larger players can pressure profit margins.
- Shifting Work Trends: If remote work decreases in popularity, the demand for coworking spaces could decline.
Invest in Coworking Spaces Today!
The profitability of coworking spaces hinges on key factors such as location, membership models, operational costs, and additional revenue streams.
Navigating the competitive landscape and managing occupancy rates effectively are essential for success.
If you need expert advice or guidance in this industry, Office Hub is here to help you make informed decisions and maximize your investment potential.
Take the next step in your investment journey—consider exploring coworking space opportunities with Office Hub to maximize your success. Call us to get started!
