Co-Working Spaces: An Expensive Cure for Loneliness

Desk rental outfits say they provide community and inspiration. They don't mention the high premiums they charge for that startup vibe

Photographer: Manuel Schmalstieg/Creative Commons

My desk in Bloomberg’s open-plan newsroom is 60 inches long and 30 inches deep. Twelve-and-a-half square feet of Class A office space in a part of Midtown Manhattan where annualized average office rents were just under $67 a square foot in the fourth quarter of 2014, according to commercial real estate services firm DTZ. In other words, the kind of surface I spend my day hunched over goes for around $70 a month.

Then there are co-working spaces: destinations for freelancers and entrepreneurs who want an office that doesn't double as a kitchen table or their kid's playroom. At these establishments, the average cost of a dedicated desk—the kind you can litter with Post-its one day and find undisturbed the next—was $526 a month in 2014, according to research published last year by New York workspace Cowork/rs.

To go by those averages, renting a single desk costs more than seven times as much at a co-working space than it costs a typical commercial tenant. It's not surprising that landlords charge cheaper rates to companies that take larger chunks of space, but the typical co-worker is unlikely to know just how high a premium he or she is paying over bigger tenants.

Co-working spaces market themselves as proving grounds for the future of work, where software developers and startup founders can network over third-wave coffee and fresh-baked cookies. But their business model really boils down to lease arbitrage, says Steve King, founding partner of consultancy Emergent Research. “I'm willing to sign a long-term lease for a lot of space, get a much better rate than any individual can get, and then I'm able to charge them more than I’m paying,” he says.

Given the high margins on these hip desks, before signing a contract with a co-working provider, you should ask what you're really getting for your money.

“I'm selling you work-life balance, happiness, inspiration, and I'm selling you human contact,” says Liz Elam, founder of Link Coworking in Austin, Texas. Those intangible qualities start at $350 a month and come with unlimited access to the space during business hours, invitations to networking events, and limited use of the office printer. Weekend access, conference rooms, and a mailing address cost extra.

In Elam’s telling, co-working was born out of startup work culture, where open office plans and flat organizational structures created fertile ground for innovation. Co-working spaces such as Link sprouted up to foster similar environments for freelancers who got lonely working at home and distracted toting their laptops to the local coffee shop. For the true believers, space is a commodity and community is a value-add.

There’s also another history, in which today’s co-working movement grew out of the tradition of business centers, which have long rented small offices to accountants, wealth managers, and other professionals who need a desk, mailing address, and occasional use of a conference room. The price of a membership is more likely to cover an office with a door, and less likely to come with free beer, but the basic idea is the same. Companies such as WeWork, a venture capital-backed operator with spaces in more than a dozen cities worldwide, operate like a hybrid of traditional business centers and newer, more raucous spaces.

There are other distinctions. Most spaces charge monthly rent; others let users pay as they go. Some operate like collectives, keeping fees low and minimizing profit, while others seem to operate on the same principle as ritzy golf clubs: You pay a high price for the privilege of rubbing shoulders with people who are rich enough to be there. (At one end, there's Surf Incubator in Seattle, which offers monthly memberships for $50 to users who volunteer some time to keep the place running; at the other, there's NeueHouse in Manhattan, which was charging $1,000 a month for solo memberships when the Wall Street Journal stopped by in 2013.)

If you’re thinking about the kind of co-working space that charges monthly rent, you can do worse than to think of it like a gym membership. You’ll probably pay for more than you use—King’s research shows that the average co-working member uses his or her space less than 20 hours a week—and part of what you’re paying for is the privilege of aspiration. “Bringing sexy back to the work place,” reads the tagline on Link Coworking’s website.

And, as with a gym membership, it pays to read the fine print. Regus, a “flexible working” giant that’s traded on the London Stock Exchange, is the target of an ongoing lawsuit alleging the company hid fees for kitchen amenities and telephone use in a five-point font at the bottom of a contract. Another California lawyer is soliciting clients for a separate class action challenging Regus’s automatic renewal policy. “We refute any allegation that we hide fees or make it difficult for customers to terminate their relationship with us,” says Andrew Brown, a spokesman for the company.

On the whole, King says co-working spaces satisfy their customers. Anecdotally, about 15 percent to 20 percent of members leave each year, compared with upwards of 50 percent of members at health clubs. That may be because the average freelancer isn't aiming for abs of steel. "When we're surveying people who work from home, the biggest complaint is loneliness," King says. The good news for companies in the co-working business is that the cure for loneliness is cheap to produce, and easily marked up.

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