Coworking Arbitrage Possibility?

[Don Thompson]

With the recent popularity of Coworking spaces, has anyone tried Coworking Arbitrage? What are your thoughts on this? The "shared spaces" industry is blowing up and this might be another avenue for investment. Please share your thoughts.

[Craig Baute]

Hey @Don Thompson,

I've been a coworking space operator and consultant for over 10 years. I have chains in Colorado and Chicago under the Creative Density and Second Shift brand. I would be happy to answer some of your questions.

To your main question - Yes there is a possibility for arbitrage. It's just not as easy as most people hope for. If you are in a city with more than 250,000 then it's likely that you are going to be competing with places that have spent A LOT of money on TI. There is greater opportunity in the suburbs or smaller cities where office builds are boring or dated.

In order to make arbitrage, you need to make the space stand out. This doesn't mean it has to have expensive furniture, but it needs to have a brand and an identity. Chopping up an 11,000 SF into 40 offices will just leave you with 40 offices that you'll rent for cheap rates and maybe make $3,000 a month with a lot of risks. If you brand the space and make it cool and functional to your target audience then you can have a sticky membership base and make $10,000 a month.

As a consultant, the biggest mistakes I see people make are:

1)The offices aren't the right size. This leaves too few of offices that are too big, or too small of offices where if the wall was just over 1 foot then they could charge 30 to 50% more rent.

2) Wrong size furniture. Furniture is your biggest expense and getting it wrong is painful.

3) Not understand the real target audience. Too often people read the national press and just mimic WeWork's model. That's not the best way to go unless you want to compete against them. Your audience might be remote workers, one-person companies, small companies with 10 employees in the suburbs, or satellite teams working for large companies. They all have slightly different needs.