The co-working companies defying the downturn

Friday, 27 September 2024

The liquidation of a Wellington co-working company is not a canary in the coalmine for the sector, industry insiders say, as the more adaptable are thriving.

Digital Nomad, a high profile co-working space provider with 12 offices in Wellington, was put into liquidation last week, and liquidator Jessica Kellow said the company faced difficulties getting enough tenants to stay viable.

Earlier this year a report into the sector by Sharedspace.co.nz, an online marketplace for shared workspace, found there were 194 co-working spaces around the country, and that despite the challenging environment most reported strong demand and enquiries.

But this year has been a grind for many businesses, with the latest Centrix figures showing company liquidations up 19%.

Digital Nomad’s liquidation suggests tough conditions have the potential to impact on co-working spaces, so how is the wider sector faring during the downturn?

Sharedspace.co.nz founder Matt Knight said the market was softer as many businesses were doing it tough and looking to cut office costs by using a work from home model.

“Many of the business owners that I talk to don’t necessarily want to go down that route, but if they are struggling and can save some cash and maybe some jobs, then working from home is a good option.”

Co-working space operators have been feeling the impact of that, but some types of co-working offerings are being affected more than others, he said.

Businesses had pulled back from committing to dedicated full-time desk space, but demand for memberships involving hot desks and access to facilities had remained steady, he said.

“Memberships are a more affordable and flexible option than fixed desk space, and mean businesses can have staff coming in to pick up a hot desk two or three days a week.

“It’s not as lucrative for providers, but it’s a good mid-ground for many businesses.”

There has also been a big increase in demand for, and enquiries about, booking meeting rooms, he said.

“Businesses realise that working from home leads to a loss in workplace culture, so they’ll book rooms to get their teams together for a full day workshop, and then maybe drinks on a regular basis. They also use them for meeting clients.”

Knight said while Digital Nomad’s liquidation followed the liquidation of another well-known Wellington co-working space, The Settlement, last year, it did not follow that providers in Wellington were struggling more than providers in other regions.

“The co-working space sector is a lot like the hospitality sector, especially now. There are lots of different providers, with different offerings and mixes of options.

“And as with a restaurant, to be successful it is key to have the right dynamics, pricing, offerings, and location. If one of the ingredients in the mix is not quite right, it can flip the business quite quickly.”

Some operators had struggled and closed down, but there were others who were doing fine, he said.

“So it’s not all doom and gloom. And the Government’s edict this week for public sector workers to return to working from the office is a good call. I expect it to have a trickle-down effect on demand for co-working space too.”

Hannah Salmond, who is business manager for Servcorp, a co-working space provider in Wellington, said she could not comment on the position of other providers, but the current market was a hard one.

“Our position is a bit different to many others as we are part of a big global player, established in the 1970s and we’ve been operating in Wellington for 20 years, and have worked our way through hard markets before.”

Her company’s core offering was private serviced offices for short or long term lease, more than hot desks and dedicated desk space, although they did have some desks.

Demand for their desks was not as high as it had been in the past, she said.

“But the trickle down effect from businesses downsizing their permanent office space and opting for more flexible lease arrangements has been quite positive for us.

“We have a range of different sized offices and can cater to different sized teams, and we provide a full suite of services from admin to reception to our clients, so it’s not just space they are getting, and there is demand for what we provide.”

Their biggest client had 30 employees, and had recently changed their policy so that employees had to be in the office three days a week, she said.

“A lot of businesses are already moving away from the work from home model, and the Government’s directive to the public sector will only increase that.

“We don’t have public sector clients at this point, but we do have clients that consult with government, so I think we’ll see a positive impact from the move too.”

Tom Harding is director of Qb Studios, which provides co-working spaces in Auckland and Christchurch.

He said there were different offerings within the broader sector, and very different trends were evident in them, but there were also slightly varying trends between cities.

Ninety-eight percent of his company’s offerings were private, shared offices with access to facilities such as members’ lounges and cafes, while other providers had a bigger focus on desks, he said.

“Our spaces in Christchurch have been full for the last two years, so our occupancy hasn’t really been impacted by the economic downturn.

“That’s why we’re building stage two of our High Street development in the Christchurch city centre, and expect to complete it by February.”

The main reason for their solid occupancy rates was that their workspaces provided a solution to a problem, he said.

“They bridge the gap between traditional office space, and more flexible workspaces where businesses don’t need to be tied into a long term lease, and the costs that come with it.”

It was a pretty uncertain world, so businesses benefited from office spaces that could scale according to their needs, allowing them to expand or downsize as necessary, he said.

“Flexibility helps maintain budget efficiency, optimise costs, and generate savings which are all things businesses are looking for in tougher economic conditions.”

Harding said some providers in Auckland’s CBD and in Wellington might be struggling a bit more, due to the disruption of redevelopment work, and the dynamic of public sector cuts respectively.

But overall the co-working space market should perform a bit better than many other sectors because providers had the ability to offer a range of flexible solutions, he said.