Running a Co-Work / Hot Desking Operation ......

[vdn]

Any help appreciated. I have an unusual opportunity; at purchasing a large commercial space in Manchester city centre. I am looking at options for it; especially given the current climate...

I know that hot-desking / co-working was getting huge in Manchester; as it was / is in other major cities. I have an idea that would set it apart from other, similar, operations; however, I'm naive to how it works in a few respects.

Do business rates have to still be paid in full; as though it were one company / person renting the space... or is there a classification for communal / co-work areas that see business rates somehow affected?

Does anyone have any experience in this field? Any pitfalls or things to look out for?

Any tips appreciated!

[Taita]

There was a good thread on WeWork in this forum and whether the business model (not just WeWork itself) was long term viable.

I googled it and this came up, but I think it was longer than this, but I can't remember the thread titles, apologies.

https://www.pistonheads.com/gassing/topic.asp?h=0&...

[vdn]

Taita said:

There was a good thread on WeWork in this forum and whether the business model (not just WeWork itself) was long term viable.

I googled it and this came up, but I think it was longer than this, but I can't remember the thread titles, apologies.

https://www.pistonheads.com/gassing/topic.asp?h=0&...

Thanks; I'll have a read of that - and a search.

[Hitch]

A couple of points to consider might be:
- whether 'cheap office space in Manchester' will still seem cheap in two years when lots of firms have stuck to home-working and a load of firms have ceased trading following a deep recession.
- whether the model works. I knew someone senior at WeWork (i.e. in a Global role) and he was laid off late last year because they're on their arse
- whether a single building works. The last two big firms I've worked with have had a accounts with national providers so that we could drop in/meet where we needed to
- what capacity you'd need to break even. Easy in easy out is great when things are booming but I bet a lot of small firms have now completely exited their spaces having served their months notice

I've often thought that a niche model might work in helping to really differentiate e.g. find a sector you specialise in serving so you're creating a community/industry hub which will attract people in or have a differentiated geographic strategy such as setting up only at major train stations...

Re tax. I presume you pay the full whack as your business occupies the entire space and then split it as a cost in your pricing plans.

[p1stonhead]

I’m pretty sure I’ve read a couple of articles recently that hot desking is effectively deal until Covid is 100% resolved?

[vdn]

Yes; hot-desking won't be a thing for while but I think - it'll be popular again.

As for the business model; yes; it would be serving a niche industry and act as a business hub - also; the shared areas would serve a specific purpose and I think it would be very attractive to the niche; a niche I've been involved with for some years.

I'll be keeping an eye on the co-work situ' over the coming weeks / months.

[PistonBroker]

Pretty sure you pay rates as a whole. I know there's been talk of passing a portion of the Covid business rates grant down to tenants like this as they've missed out otherwise. Though Rishi has since brought in a top-up to take businesses in shared spaces into account.

I agree it's been popular, but I think I'd be concerned about it going forward. It could go either way - many hot-deskers use it because their employers have them working from home or they're self-employed from home and it's a way to get out of the house and get a bit of that office feel. Will they be so inclined to do so now they know they're risking picking up Covid?

On the other hand, once this is all over, isn't it likely that there will be even more people working from home as bosses have realised it's not as bad as they perhaps thought it was? In which case will there actually be more people looking for that opportunity to get out of the house?

[vdn]

PistonBroker said:

Pretty sure you pay rates as a whole. I know there's been talk of passing a portion of the Covid business rates grant down to tenants like this as they've missed out otherwise. Though Rishi has since brought in a top-up to take businesses in shared spaces into account.

I agree it's been popular, but I think I'd be concerned about it going forward. It could go either way - many hot-deskers use it because their employers have them working from home or they're self-employed from home and it's a way to get out of the house and get a bit of that office feel. Will they be so inclined to do so now they know they're risking picking up Covid?

On the other hand, once this is all over, isn't it likely that there will be even more people working from home as bosses have realised it's not as bad as they perhaps thought it was? In which case will there actually be more people looking for that opportunity to get out of the house?

Exactly my thinking also; as well - the niche I am in thrives on collaboration, whilst being an oft' lonely pursuit. So it has a driving force in that respect. I certainly don't want to be stuck with a large commercial space and have nothing to do with it - so will have to play it right.

[DSLiverpool]

We work from AvenueHQ a private coworking space in Liverpool and Leeds.
We have our own rates as we have offices within but it has hot desks, resi desks and offices.
It’s a great place and well run but not that cheap, hot desk from about £100 / 10 days or £250 month.
We have no intention of going back for quite a while however.

[vdn]

DSLiverpool said:

We work from AvenueHQ a private coworking space in Liverpool and Leeds.
We have our own rates as we have offices within but it has hot desks, resi desks and offices.
It’s a great place and well run but not that cheap, hot desk from about £100 / 10 days or £250 month.
We have no intention of going back for quite a while however.

Interesting! Thanks for that. I think there enough brilliant cowork spaces that another one would have to fight hard; but within a very specific niche; could work well. I'd certainly be pushing for the monthly charge. A decent space with 40 + desks in... & other income streams such as equipment for that niche - could be a good earner. I need to do the sums and see how the virus plays out; regard its effect on working habits.

[vaud]

Not a sector I’d touch for 12 months. Your demand side will be dead.

[Foliage]

I design office spaces, the amount of space per person as far as my calculations have gone has over double from the old model, businesses are going to need to source more office space, particularly for roles that cant be done from home due to GDPR and other security productivity concerns.

I'm currently working on multiple open office spaces and only able to occupy them at 40% capacity at the very most. The biggest issues ive had is having enough circulation space to keep the 2m distance workable.


Hot Desking during the Covid19 outbreak is a no-no apparently.

Edited by Foliage on Friday 15th May 14:56

[Foliage]

vaud said:

Not a sector I’d touch for 12 months. Your demand side will be dead.

Contrary to what ive seen, offices can only be at 40% capacity, some business's want bodies back in the office due to the role, IT infrastructure failings, perceived productivity and will be looking to rent additional space.

[vaud]

Foliage said:

Contrary to what ive seen, offices can only be at 40% capacity, some business's want bodies back in the office due to the role, IT infrastructure failings, perceived productivity and will be looking to rent additional space.

Equally I think they will want to keep them away from other office populations where possible - the push will be to rotate people working from home?

[jammy-git]

As Dave says, there is the option to provide both - sub-let to slightly larger companies and let them pay their own rates and have a hot-desking/fixed desk area. You could even look into the option of getting mixed use to allow you to bring in a coffee shop.

I think the reality is that most co-working spaces struggle to make money, and, life gyms, probably rely on dormant memberships to make profit.

[springfan62]

I would make sure you have a fallback option if the venture fails, ie residential conversion or other use.

I also suspect that with the experience of home working a lot of offices are going to downsize and allow more home working so potentially there could be an over supply of office space going forward.

My understanding that if you operate hot desking or shared space you are responsible for business rates, small individual offices can be demised separately and the tenant can claim small business relief.

I think the market for small individual offices which allow independent working, are COVID safe and benefit from SBR are going to show the strongest demand and if you can create a niche community then demand will be there.

[vaud]

Lots of CFOs are looking at their prime real estate and thinking of cost savings.

[DSLiverpool]

Your aiming for a niche, I had an idea for a office with self employed fe dev, be dev, designer, marketing people all self employed but supporting each other - might still do it.
The usp is the end group is much bigger than the sum of the parts.

[vdn]

Wow! Some really interesting points made by you all - and genuine food for thought.

Going the mixed bag route / maybe some small private spaces and a shared area is the right way to go - and agree with having a get out plan-b also.

I am going to try press pause on it and hope to see a trend emerging / or not to help decide. But will only be able to hang on so long.

The niche I’m thinking of, thrives on collaboration and so it’s something I’ll research further; to try and get a handle on potential demand.

[skwdenyer]

vdn said:

Wow! Some really interesting points made by you all - and genuine food for thought.

Going the mixed bag route / maybe some small private spaces and a shared area is the right way to go - and agree with having a get out plan-b also.

I am going to try press pause on it and hope to see a trend emerging / or not to help decide. But will only be able to hang on so long.

The niche I’m thinking of, thrives on collaboration and so it’s something I’ll research further; to try and get a handle on potential demand.

I, amongst other things, work with landlords to find uses for empty spaces - sometimes that's a business rates mitigation strategy, sometimes that's a project with a charity or social enterprise, sometimes that's setting up a serviced / shared / co-working space, sometimes something else entirely!

I also run my own shared workspace in London.

The biggest problem I foresee for the next few months is simple fear; however beneficial the right niche operation might be for the potential users, the twin fears of virus and overheads are going to be major impediments.

Assuming we get through that, many are predicting falls of as much as 35% in commercial rents. That has some interesting implications. Shared workspace, financially, is essentially a margin operation - users will pay x% (where x isn't fixed) in return for flexibility, shared facilities, fringe benefits, and so on. But if underlying "value" drops then - if services are to be maintained - x rises significantly.

It is partly that equation that made the likes of Regus and co relatively niche operations in the past. The interesting shared workspaces tended to be run by people like architects who would take over a larger-than-necessary space and sub-let desks to like-minded professionals. Later on there were collaborative workspaces - essentially co-ops - where all the fun social and networking stuff was essentially created by volunteers (fun, but not an investible business model).

Whilst some things have of course fundamentally shifted over the last 20 years or so, and especially the rise of "as a service" models, it is the rise in underlying asset prices that have allowed the model to flourish - that "x%" has been a much larger numeric value in turn supporting all the lovely stuff. The fact that, especially post-GFC, those with money have been looking for assets to invest in has simply opened up the taps for the enabling monies.

With that came the likes of WeWork who simply realised that "x%" was now such a large number that it would actually pay for the fun stuff.

Moving forward, will people really pay a huge margin over the asset value for the privilege of a shared workspace? That's the big question. WeWork, for instance, lease most of their UK properties. Even assuming they can renegotiate their leases, can they maintain that margin?

If you own the space (and assuming you don't have major debt on it), the equation shifts again - you may be in a position to maintain services by reducing your underlying asset return. That could allow you to build a decent market position in this new world. But it will still be a market position based upon buying market share with bells and whistles.

Against that, really interesting spaces in Manchester pre-crisis could be had for £12 psf or less (e.g. funky old places like Tanzaro House); it may be a tough gig to carve out a margin that makes holding the asset worthwhile. There're also the twin elephants in the room of the University campus and Media City - there's a *lot* of (in)vested interest in maintaining market share!

The silver lining? If the commercial market crashes hard, we may see increasing numbers of landlords making use of permitted development rights to shift B1 (office) space to C3 (residential) in the hope of getting a better return (or at least a break-even exit). Over the medium term, because of those rights, we'll probably start to see a return to an equilibrium and a rise in values again. There may simply be less office space.

In Manchester, of course, that's nothing new. Starting in the 1980s, vast numbers of old Victorian buildings were converted to flats. The IRA (or was it the provisional wing of the RIBA?!) bomb paved the way for a massive re-imagining of the centre. Money poured in and, as we all know, money follows money. Salford Quays Media City was born, and suddenly new offices (as well as apartments) were thrown up all over the place. No doubt many of those will now become flats, and so the cycle will continue.

Now I happen to think there *are* a couple of workspace models that would work very well in a post-crisis environment; I think many people will change their sense of what matters, and the opportunities exist around those shifts. And I have 20 years in this market to inform my decision-making. But unless you're looking for partners in developing whatever it is you've bought then I probably ought to stop there (and, no, I'm not treating this like a pitch opportunity).