• By Jon Varsano
• April 29, 2020May 1, 2020
• coronavirus coworking culver city coworking culver city shared office knotel 2020 los angeles coworking los angeles shared office playa vista coworking playa vista shared office wework 2020
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Los Angeles Coworking Space Model

Los Angeles Coworking Space must change drastically or they will no longer exist. The Coronavirus Pandemic has killed the coworking space as we know it.  Covid-19 has attacked all of the main reasons that coworking spaces thrived in the first place. Independent Contractors, Home-Based Businesses, Professional Service Providers, and Start Up Tech and Entertainment Companies that wanted to take the next step and have their own office flocked to Wework, Spaces, Knotel and other coworking facilities in the Los Angeles area. Having your own office with a non-PO Box mailing address and a receptionist answering your phone gave these small business owners a sense of professionalism and legitimacy. However, after several weeks of the whole world essentially working from home, the appeal of doing the same work in a crowded and expensive environment seems like a dangerous luxury. Many small business owners will continue to work from home for the foreseeable future due to health and financial reasons. The stigma of a home-based business not being legitimate will wither as the work-from-home trend gains popularity with businesses large and small.

Another advantage of the Los Angeles Coworking Space was the low start up costs and lease flexibility which is essentially a short term sublease agreement. That appealing aspect does still exist but on a much more diminished level. Operating from your home will be lower cost and generally more flexible, but what if you really want or need an office to make your business grow? The next few years will probably see a lot of change in the traditional office market. Due to the pandemic, many companies will be forced to downsize and/or have more employees work from home. The open floor plan will be replaced by more private offices that allow for safe social distancing. Flex and staggered work schedules will reduce the need for larger office suites. It’s still early in the process and we still don’t know exactly how things will shake out, but all the upheaval will most likely cause rental rates to decrease from the record highs we previously had in the Los Angeles office market. If the recession is as deep as many fear, commercial property vacancies will increase and landlord will be forced to give generous rent concessions. In this changing office market, the appeal of the coworking’s low cost start up and flexible terms is lost to the traditional office space powerful incentives.

Shared office operators like WeWork positioned themselves as all-inclusive facilities where all of it’s members enjoyed amenities that they could not find by themselves. From the free coffee & beer, included office furniture, and

conference room rental to the synergy and collaboration opportunities, it was like a college dorm for adults. Well just as college dorms are considered a hotbed for spreading the virus, so are shared work spaces with common kitchen and hotdesk set ups. Synergy and collaboration will still have an appeal, especially to those in the tech and entertainment fields. However, the rising popularity of the Zoom meetings and similar technology shows that the necessity to be in cramped quarters for proper collaboration is an unnecessary risk.

Los Angeles Coworking Space Changes

The operators of the coworking spaces are aware of their shortcomings and will adapt to survive, but will it be enough? Not withstanding the well publicized internal problems with WeWork, the entire business model is based on shaky economics. The coworking company commits to a long term lease and generates it’s revenue through short term subleases of non-secure subtenants. That model seemed to work fine as long as the funding was flowing and rents continued to rise, but now many are questioning the viability of this under the new normal. At best, the changing economy will reduce the revenue of coworking operators based on their announced changes– increase of antimicrobial surfaces, additional and improved air filtration, adding sanitizing stations, improved office flow, temperature monitoring at entry points and desks spaced farther apart. A conference room for 12 will now be used by 6. All of these improvements costs money and the spacing issues with reduce the number of subtenants or “members.” Benching — desks lined up side by side, will be eliminated so the amount of revenue generated per square foot will be reduced. In less expensive markets, the lowered revenue will not be so dramatic, but in markets like New York, San Francisco, and even Los Angeles there will be an enormous decrease. In many Los Angeles submarkets, coworking companies were leases spaces at $3 to $4 per square foot per month and subleases them out at approximately $15 per square foot. If they have to reduce their density by 30% or 50%, then you can see what that will do to their bottom line.

Los Angeles Coworking Space Future

Large meeting spaces where people can appropriately social distance will be at a premium, but that’s an additional cost that is not easily passed onto the end user. Large office buildings are looking at plans similar to schools where they can take their existing space and better utilize it. Staggering shifts of Group A and Group B so you split up the employees or students/teachers into greatly reduced sized groups. Coworking companies could implement a similar strategy but will that appeal to members paying a premium rate? Time will tell. Perhaps a vaccine will shift the paradigm and life will go back to the way it was in 2019 with budding young entrepreneurs lined up face to to face collaborating on the next big thing. Many longtime commercial real estate brokers think that the open floor plan was loud, stress-inducing, and didn’t provide benefits that it promised. Maybe the shared office space can evolve into something that is stronger, safer, and more economically viable. Banks, investors, and landlords have a lot riding on continued success of the coworking business model. The next few months will see how nimble these coworking companies can be.

To find more info about offices near you, please contact Jon Varsano at Vars Real Estate.

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