Written evidence submitted by the Co-Working Research Collective (COV0125)

 

About us

The Co-Working Research Collective is a group of academic researchers investigating the dynamics of co-working spaces and their role in the wider UK economy. Members are:

 

Executive summary

  1. Co-working spaces (CWS) have emerged as central to the development of a connected, digitised economy, providing a social space within which freelancers and small business start-ups can have access to fast broadband and diverse social networks that provide opportunities for innovation and learning.
  2. CWS take on a variety of forms ranging from global models such as WeWork down to local community-based organizations. In UK cities such as Manchester, Bristol and Brighton a diverse ecology of CWS has emerged. These serve different clients and different purposes from the straightforwardly commercial model through to local authority and social enterprise supported CWS that promote inclusion, economic development and skills upgrading.
  3. CWS have become particularly important for younger freelance workers who may not be able to work from home.
  4. COVID-19 has led to the closure of most CWS, placing many of these dynamic features of urban economies on hold. CWS businesses are in a precarious financial situation and their members have been pushed back to solitary home working.
  5. It is therefore important that CWS restart as soon as is safe and practicable to do so.
  6. Whilst many CWS are devising new ways to use their space in ways which sustain social distance, they will require specific assistance to rebuild their businesses and their business models in the new environment, from both local authorities and central government.
  7. In particular, direct and indirect financial support needs to be made available to CWS to allow them to renegotiate long term leases on their properties both to avoid bankruptcy and in order to allow them to change their pricing structures in the light of the broader economic downturn which has affected freelance work.

 

 

Evidence

 

Co-working spaces: who uses them and why?

1.      Co-working spaces arise from a lack of suitable alternative workspaces in firms and homes, while providing freelancers with a productivity-enhancing milieu in which to work. There is a diverse ecosystem of CWSs from city to city, with a wide range of business models and organizational priorities found in the sector.[1]

 

2.      This growth is related to the changing nature of the economy in several ways.

    1. Firstly, the sphere of freelance work has grown rapidly across a range of industries but particularly in digital and creative work.
    2. Secondly, these workers require high-speed broadband and a sociable environment in which they can enjoy their work and be open to learning about new projects and ideas.
    3. Thirdly, many of these workers are young, in house- or flat-shares or living with their parents. They therefore require facilities beyond the home.
    4. Fourthly, CWS occupy industrial and urban space vacated by businesses and local authorities. They have created a new dynamism in inner city and other outlying areas which might otherwise be in decline.
    5. Fifthly, CWS as a sector has linked itself very closely to an ethos of informality and social networking, coupled with modern relaxed and colourful interior design in order to attract young people as freelancers and entrepreneurs. Its flexible use of space allows small businesses, project teams and larger meeting groups to work alongside individuals and in this way facilitate innovation and learning.

 

How were CWS doing before COVID-19?

3.      At the time the coronavirus COVID-19 pandemic hit co-working spaces were continuing to grow rapidly in UK cities, supported by various combinations of  large real estate owners, private equity investors, international brands, local entrepreneurs, social enterprises, local governments and universities. In 2019, London was the top city worldwide in coworking growth, with a new space opening every five days, while the UK ranked fifth in the world in coworking growth per capita.[2]

 

Immediate Impact of COVID-19 and Government Response  

4.      The domino of COVID-19 social distancing practices, followed by formal lockdown measures that came into effect across the world, immediately impacted CWS, leaving thousands of work stations devoid of users and behind locked doors, raising fundamental questions about the viability of the CWS model. The current crisis has seen demand for flexible workspace in the UK drop by a fifth in the face of an abrupt shift to working from home for desk-based workers including professionals and others.[3]

 

5.      On April 1st it was reported that over 30 of the larger coworking businesses in the country had sent a letter to the Chancellor asking for government support in order to avoid the collapse, citing “huge declines in membership”.[4] Many small businesses using coworking spaces only became eligible for support in early May when the government pledged additional £617m for grants to businesses in shared offices.[5]

 

6.      The impact of these changes will be felt differently across urban and rural areas and across different forms of social and economic diversity and inequality. For instance, the added necessity of secure and stable broadband when homeworking, which is subject to persistent ‘digital divides’ in access and ability to use, will only deepen with the move away from co- to home-working. The demand for productivity will not let up, even as the new communities that have sprung up around the new ways of working are deprived of their co-working infrastructure, placing a risk to the mental health of displaced co-workers experiencing social distancing as social isolation.[6]

 

7.      A central contradiction is that many commercial CWS are committed to long-term leases and investments but with revenues based on short-term contracts with multiple members. They currently face a substantial shortfall as members no longer join or refuse to pay at the same levels as before. A source of potential uncertainty, therefore, is whether investors will be willing to bail them out in the current context.

 

How have CWS responded?

8.      A wide variety of responses have emerged, depending on the specific source of funding and purpose of particular co-working initiatives.[7] In response to these dynamics, some spaces are attempting to create and sustain online communities to support co-workers stuck at home. A number of CWS globally have stepped up their  virtual services such as network events to justify continuing to collect membership fees and to keep in touch with members for when the lockdown winds down and users can begin to reenter spaces in an inevitability socially-distanced fashion.[8] Some spaces are already known for their provision of an online environment while others have clearly not prioritized it and are playing catch up, with an element of competition in the ramped up efforts to create online communities during lockdown as a means of promoting spaces when the economy begins to reopen. Moreover, anticipating an increasingly fraught struggle for survival in the coming crisis, co-working spaces have engaged in intensified competition to establish closer connections with local and regional government.

 

9.      Most co-working spaces have closed for the duration of the lockdown and hope to pick up again in the future. Many, but not all, have suspended membership fees in this period. Whilst many spaces are hosting webinars on topics like the challenges of homeworking, the formal and informal networking events on which many spaces set out their stall seem difficult in this context to say the least.  Other activities central to the experience and practice of co-working and which purportedly make CWS worthwhile in the first place, simply do not translate into a realm divorced from physical space and its material affordances.

 

The status of self-employed and freelance workers

10.  As well as the dynamics within the provision and organization of co-working spaces, there is the wider question of the status of the self-employed and freelance workers that represent the vast proportion of their users. Work has dried up for freelancers and the self-employed, rendering them dependent on government stimulus and support schemes ill-suited to the specificities of their legal and financial status. Research by the Association of Independent Professionals and the Self Employed found freelancers’ confidence in their businesses for the next 12 months at the lowest level on record at –57.3%.[9] This precariousness has a knock-on impact on spaces as membership fees take a low priority during the lockdown and resulting downturn, depriving spaces of income to tide them over in the current crisis.

 

What does the future hold for CWS?

11.  The future for co-working spaces is uncertain and at the mercy of the wider possibility of significant restructuring in how we work and do business in the wake of COVID-19. Many of the existing freelancers who had been using spaces may need time to rebuild their networks and may be less inclined to jump back into expensive membership deals.

 

12.  Changes in the high street, shifts in the economy of urban rent and office space, small business closures and collapsing property prices, with councils playing a more pronounced role in planning and allocation the provision of premises, may combine to free up stock for co-working spaces at low cost. At the same time, given the decline in economic activity and the lack of alternative tenants for the buildings they occupy, spaces may take the opportunity to pressurise their landlords to renegotiate leases, driving down prices. Moreover, as well as impacting upon the current composition of the co-working sector, the crisis may precipitate the rise of new entrants.[10] Specifically, low interest rates and easier access to business loans may encourage new entries into the co-working sector especially if, when lockdown is released, it looks like there may be more demand for working outside traditional corporate office space.

 

13.  The demand from corporate workers to work remotely may increase, especially where this helps avoid a commute in public transport, and be more justified, having shown that it is possible during the lockdown. Under lockdown conditions the mandatory remote working has been confined to the home, but homeworking conditions vary hugely and CWS still offer additional advantages such as better infrastructure and access to a wider network.[11]

 

14.  For the foreseeable future CWS will only be able to open taking account of social distancing rules. As well as the various hygiene requirements and the restructuring of the carefully created interior designs of many CWS, this will mean, as elsewhere, a reduction in the numbers of people who can work in the same space at the same time, with a consequent impact on revenues from membership fees from individuals.

 

15.  Small- and Medium-sized Enterprises which have located to CWS to encourage innovation and knowledge exchange will be taking a big hit from the pandemic and the crisis to come, and this may impact upon their capacity to co-locate workers in these kinds of spaces, impacting on CWS’ revenue. On the other hand it may be that as large organizations learn that corporate offices are not as necessary as they thought, they may become less able to bear the financial burden of maintaining physical premesis and more willing to disperse their employees outwards into coworking spaces rather than stay in their home environment.[12] Moreover, co-working spaces may provide a more cost-effective solution in terms of quickly coming up with workspaces that abide by social distancing rules, as compared with corporate offices. In this sense, it is not implausible that those co-working spaces able to survive and revive post-lockdown could enjoy a boost in membership.

 

16.  To encourage new custom and to get former users to rejoin, we may witness price wars ensue among existing spaces, with the capacity to compete reflecting variable levels of sunk investment in real estate. On the user end, this may have the effect of making space membership more affordable, but there will be a divergence between spaces that own their property and those that rent.

 

Will the focus and purpose of CWS change due to COVID19?

17.  The focus and purpose of co-working spaces may also change due to COVID-19. The already competing imperatives of exclusivity, productivity, community and wellbeing may come into greater conflict, with different spaces crafting new offers based on a fidelity to some principles above others. There may become a more profound polarisation between luxury for some and necessity for others. In particular, we may see the emergence of new forms of co-working space in the private sector such as boutiques prioritising social distancing and hygiene and ‘third spaces’ owned by large corporate brands offering their employees an alternative place to work away from both the office and their homes.

 

18.  Meanwhile, social enterprises and local authorities may also be keen to rebuild communities and networks by rapidly opening and reopening spaces particularly in areas of deprivation and rural areas as a way to connect them to urban centres to which workers are unable to travel with the restrictions in place because of COVID-19. The lockdown has appeared to have encouraged more community-focused thinking and a greater sense of civic belonging, which holds the potential to feed into a resurgent and insurgent re-envisioning of the co-working agenda. Affordable co-working space on shuttered high streets could be a more appealing prospect to groups formerly excluded from the social and organisational culture spaces project. This may take new forms such as ‘pop-up’ or improvised temporary spaces focused on specific projects and events in specific locales.

 

Recommendations for action

19.  The fallout of the pandemic and the crisis to come will affect the co-working sector unevenly, depending on a range of factors including business models, urban geographies, ownership structures, and the particular needs of the different users that spaces cater for, as well as the companies and clients on whom they depend for work. The crisis will incubate new work cultures and further cultivate those already existing, whether good or bad. The normalisation of socially distant working practices may crush the nascent co-working sector or create new demands for the construction of communities around work that is increasingly atomised and individualised. This raises the question as to whether the CWS model can sustain itself independently of the physical and spatial proximity on which the offering is based.  This seems unlikely and therefore efforts need to be concentrated on getting the CWS sites themselves back up and running if they are to contribute to the resurgence of the economy and particularly its high value digital and creative sectors.

 

20.  Funding of various sorts has been made available to businesses including CWS and self-employed workers using CWS through government support schemes, but only indirectly and after specific pressureThis highlights the need for a much clearer focus on the dynamics of this particular sector than there has been up to now. With CWS playing a vital role in providing an infrastructure for some of most dynamic and innovative parts of the economy, it is important that policymakers at the local and national level take note of the significance of the sector and pay close attention to the needs and fortunes of this foundational resource in the coming months. This is not least because any impact on CWS will be felt by large corporations as well as the many SMEs and freelancers who work in them.

 

21.  Given the geographical impact will be varied, and the possible changes in property markets that will track the pandemic and economic turmoil to follow, local governments are especially well placed to cooperate with CWS to support recovery, particularly for the hardest hit and most disadvantaged areas and groups of workers. In particular, the specific issue of renegotiating CWS leases in the light of the current uncertainties may need more general attention. Local authorities may need to be given a clearer role in focusing on the revival of this area given their centrality in planning the development and usage of urban spaces. Similarly local authorities have a role to play in ensuring the upgrading of broadband technologies and providing access to these facilities to potentially excluded groups by facilitating the development of CWS with social missions to reach out to the wider community.

 

May 2020

 

Notes

 

 


[1] Bouncken, R. B and A. J. Reuschl. 2018. “Coworking-spaces: how a phenomenon of the sharing economy builds a novel trend for the workplace and for entrepreneurship”. Review of Managerial Science, 12(1): 317-334.

[2] Hobson, K. 2019. “Global Coworking Growth Study 2019”. Coworking Resources, 15 May: https://www.coworkingresources.org/blog/key-figures-coworking-growth

[3] Business Matters. 2020. “Demand for UK flexible workspace dropped 20% of Pre-COVID-19 levels”. 20 May: https://www.bmmagazine.co.uk/in-business/demand-for-uk-flexible-workspace-dropped-20-of-pre-covid-19-levels/

[4] Boland, H. 2020. “Co-working space startups will collapse without government support, Chancellor told”. Telegraph, 1 April: https://www.telegraph.co.uk/technology/2020/04/01/co-working-space-startups-will-collapse-without-government-support/

[5] Hammond, G. 2020. “UK pledges extra funds for businesses that share office space”. Financial Times, 2 May: https://www.ft.com/content/ebe3cd38-e6a4-4642-b31c-460533f3ce26

[6] Economist. 2020. “How will humans fare when isolated?”. 4 April: https://www.economist.com/international/2020/04/04/how-will-humans-by-nature-social-animals-fare-when-isolated

[7] See e.g. LocalGlobe & Latitude. 2020. “COVID-19 Mitigation Measures by UK Startups”. Survey posted at Flourish: https://public.flourish.studio/story/279152/

[8] Stuart, S. C. 2020. “Coworking Communities Chart a New Path During COVID-19". PCMag UK, 14 May: uk.pcmag.com/how-to-work-from-home/126975/coworking-communities-chart-a-new-path-during-covid-19

[9] IPSE. 2020. “Coronavirus crisis drives freelancer confidence index to ‘unimagined lows’”. 7 May: https://www.ipse.co.uk/ipse-news/news-listing/coronavirus-freelancer-confidence-unimagined-lows.html

[10] Powell, E. and N. Karunaratne. 2020. “Will landlords be undone by the WeWork effect?”. Investors Chronicle, 29 April: www.investorschronicle.co.uk/shares/2020/04/29/will-landlords-be-undone-by-the-wework-effect/

[11] Stangler, D. 2020. “Here are three reasons COVID-19 makes coworking spaces even more important”. Forbes, 3 April: https://www.forbes.com/sites/danestangler/2020/04/03/here-are-three-reasons-covid-19-makes-coworking-spaces-even-more-important/#41815d333aca

[12] Liu, J. 2020. “How co-working spaces could succeed in the post-pandemic world”. CNBC, 4 May: https://www.cnbc.com/2020/05/04/how-co-working-spaces-could-succeed-in-the-post-pandemic-world.html