A new model is necessary
Coworking remains a great product, attractive, and popular among its users. However, the existing business model has exposed its investors to long-term vulnerability.
In essence, a coworking operator commits to renting space for an extended period, typically spanning 10-15 years, while users opt for shorter-term contracts, usually just one year. This misalignment creates potential risks that could materialize during the extended lease periods of over a decade. These risks may include a cyclical downturn in rental market demand, sudden surges in office space supply due to multiple large projects completing simultaneously, economic crises (which tend to occur at least once every decade), or unforeseen circumstances such as unprecedented events (COVID-19).
The solution? It might be time for the coworking industry to take a page from the hotel industry's playbook, specifically the Hotel Management Agreement (HMA). In an HMA, risks are shared between the property owner and the operator, providing a more balanced approach to long-term stability. Forward-thinking operators have already embraced this model as a standard practice when establishing new coworking locations, helping to mitigate potential challenges in the years ahead.