Coworking and PropTech in the post-covid world
Following the fast boom and bust of the pied piper WeWork, what's the next big jingle in the industry?
One of the hottest (and most worrisome) questions right now is how detrimental the pandemic has been for the commercial real estate industry. Will prop-tech be able to recover and bounce back? Or will it succumb from countless companies moving online? Even for companies who return to their offices, the physical space and work environment will surely differ from what they knew 6 months ago.
There are 2 sides to this argument. Rating agencies, for one, are doubting the prospect of co working companies rebounding post pandemic. DBRS Morningstar predicts that the virus will keep workers at home, in addition to smaller companies cancelling their co working contracts to save money. The rating agency believes that WeWork, specifically, has raked up significant lease liabilities and has a dim hope for survival.
On the other hand, Yardi, a long-time software vendor for the real estate industry, saw the pandemic as an opportunity to create Yardi Kube, an all-in-one platform for managing shared workspaces. According to the company, Yardi Kube, which was recently released in April, provides a simple solution for co working operators by helping clients manage their profile, connect with members, pay bills, purchase services and book spaces with one click. Companies like Yardi believe in a comeback from the co working industry, having invested into building technology catered to serving co working customers at the height of the pandemic.
Rules and changes
WeWork, the once high-flying co working startup valued at $47 billion before a humiliating public downfall including an oust of its abrasive CEO, is implementing new changes and modifications within their spaces to handle the transition. In the beleaguered startup’s “Future of the Workplace” plan, the company aims to tackle 3 key areas they identified as professional distancing, cleanliness and behavioural signage. This includes sanitation stations, public signage for occupiable seats and a new set of house rules that up previous cleaning standards and refine capacity protocols. Nonetheless, the opaque future of work will be more complex than a co working space installing new enhancements across its workspaces.
On June 16th, Upflex, the largest global network of shared workspaces, announced a re-entry program called Safe Spaces. WeWork and Knotel are amongst the big names who have joined in to this collective industry effort to comply to a strict set of health and safety guidelines as outlined by the CDC. Participating partners who earn the Safe Space stamp of approval will be made searchable through Upflex’s site, where its members can browse and book guaranteed clean spaces around the world. This is one of a number of measures co working companies are taking to reassure teams and individuals to ease back into the rhythm of sharing desks and air in closed spaces with others.
Andrew Krioukov, the former Comfy CEO and current Entrepreneur In Residence at VC fund Union Labs, published an adaptation of the famous Maslow’s hierarchy of needs for real estate. The Hierarchy of Real Estate Needs consists of a taxonomy of physiological and core needs from safety and security, flexible space, to productivity aspirations. At the top of the pyramid is the “self-actualization” stage, which in this case relates to an employee’s need for efficient productivity and effective collaboration in their working environments. The majority of time, co working spaces like WeWork are solving this top-level need for the narrow group of people. Nevertheless, home offices, especially an unprepared and abrupt conversion to them as induced by the pandemic, do present challenges that are insufficient to meet lower level needs on Krioukov’s pyramid. Space analytics, for example, is a mid-level need that many employees from home are struggling to satisfy given crowded or over-utilized spaces in their homes that were never meant to optimize for professional work. In these cases, having access to a co working space or dedicated office would prove more practical.
Privacy, space and location
The other side of the table argues that co working spaces remain useful because of all the companies that have decided to shutter their official offices to employees. In fact, Forbes real estate analyst Ian Formigle expects the demand for shared spaces in smaller towns and outskirts to actually increase, due to their proximity to people’s homes. Another obvious trend is the growth in booking independent offices, in place of shared co working spaces that may boost services like Breather.
As of May 2020, office space provider Industrious has announced its plans to plot an IPO that could arrive as soon as next spring. The company said it is poised to benefit from the pandemic due to two reasons. First is its focus on private offices, as opposed to open concept work environments like WeWork, which makes them more appealing to the average worker in the current climate. The second is its ongoing push towards providing suburban offices that translate to close-to-home outposts for remote employees. As reported by Financial Post, Industrious is valued at around $500 million for the forthcoming listing.
Alternative uses of unoccupied space
This week, WeWork was found to be in talks with schools in New York City about holding private classes in its vacant spaces for the upcoming fall semester. As schools are seeking methods to limit headcount and cap the number of students per class, co working spaces that remain unoccupied offer a beneficial deal for both sides. Given the special circumstances, co working spaces can absorb this as an opportunity to explore alternative use cases for the time being (or the long haul). Education is one, but it is unlikely to sustain once social distancing laws ease.
Nonetheless, the need to decrease density and people per square feet also mean the need for larger spaces with utmost personal space - and co working spaces may not have much of anything else right now, but do they sure have a whole load of space.
Exclusive and global
Organizations like Upflex may be the answer to navigating shared workspaces in the near future. In the province of New Brunswick in Canada, 2 of its popular co working spaces implemented a strict members-only rule once the outbreak was declared a Public Health Emergency of International Concern by WHO, on January 30th. ConnexionWorks and USTATION shared that they immediately stopped public tours and boardroom rentals to any non-members. “We shut down the tours which, from an impact perspective, is how we gain new members,” says USTATION co-owner Glen Hicks. “We shut down any non-member access to rooms and guests. It was really members only.”
It makes sense that these co working companies are closing their doors to strangers, but that also means that individuals like freelancers will need to shoulder a membership cost to gain access to the right of room reservation at all. The pandemic likely made it difficult for workers seeking a one-time use space to secure a booking. As global employment adopts a work anywhere shift, the concept of purchasing a single membership (like Upflex) that’s good for worldwide office access will be the unlocking key.
The office reformation
Co working companies will be unable to escape this pandemic unscathed, as much as they want to deny it. However, I believe there remains a bright future ahead for the industry. As the co-founder of Common Ground Works, a leading Malaysian co working space, Erman Akincia puts it: “Companies are looking to stay liquid and retain flexibility rather than taking the risk of committing to a longer-term office lease.” With the severity along with uncertainty of the lasting effects of the virus, even large companies will opt out of signing fixed rental leases that task them with the responsibility to fill the empty space with lofty furniture, and commit them to a long term. The long-standing benefit of flexibility sold by co working spaces become a lot more apparent in this sense.
The traditional office, anyhow, will undergo a forced evolution. Evan Hardie, the director of research at IDC Canada, who researches the future of work at Canadian workplaces says that employees should brace themselves for a complete redesign of physical layouts and a revamp of protocols and rules, in addition to integrations of technology services such as voice-automation that minimize touch. The pandemic could be seen as an acceleration pedal for the commercial real estate and traditional office operators, pushing companies to assemble a toolkit that prioritizes the health and safety of workers. With the openness and implementation of new technology solutions being expedited, co working spaces will inevitably take their customer experiences to the next level.
Philip Michael, the founder of a NYC-based fintech company that operates real estate properties called NYCE Cos., says that the future of prop-tech is becoming less about cash transactions. Eventually, real estate will experience its own Robinhood-esque shake up, where people will trade, own and utilize property to their likings. If the prop-tech industry will move this quickly just yet, or realize this interesting vision in the next 5 years horizon is questionable. Especially given the fast boom and bust of the pied piper WeWork - it will take investors, landlords and companies some time before they double down on what they believe to be the next big jingle in the industry.
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All figures in USD ($)