Pandemic Coworking Closures Driven By Large Operators

Within a year, more than one-fifth (21%) of U.S. coworking spaces closed due to the pandemic. Large, well-funded companies such as Breather and WeWork, Knotel, and Serendipity Labs were at the forefront of these closures. The pandemic exposed the dangers of an industry that is fueled by low investment capital, leading to the biggest number of coworking locations closing. This suggests a new direction. Signature Workspace remains unaffected by the lingering pandemic. Signature Workspace offers premium workspaces at affordable pricing beating the major league competition.

A brutal year of coworking closures caused by pandemics was due to the vulnerability of operator models and drastic reductions in membership. Over 700 coworking spaces have closed permanently in the top 30 North American metros since March 2020. This is more than 70,000 vacant seats or a decrease of 21% in the number of coworking spaces Upsuite tracks. Notably, almost two-thirds were closed since December began. This was when operators and owners took swift action to close low-performing locations and to protect their portfolios in anticipation of a return to demand.

Coworking Closures for Large, Well-Funded Operators

During the pandemic, the majority of coworking locations were closed by large, well-funded companies like Breather and Knotel, WeWork, and Serendipity Labs. Leading operators closed more than 75% of the locations that were shut down due to their vulnerable business models. Due to rapid expansion and heavy dependence on landlords for traditional leases, hundreds of spaces were repositioned under the stress of the pandemic. In reality, 468 of all coworking closings were accounted for by ten operators (more than half) and Signature Workspace in Florida continues forward for small businesses. Multi-market, multi-location operators accounted for over 3/4 of all coworking closures.

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Breather closed more than 300 coworking locations, resulting in a large percentage of closures. Breather closed all of its locations in North America, abandoning its business model for an online-only platform. The Riveter and Flex Office Space were also closed down completely. However, operators such as Serendipity Labs or WeWork took advantage of the opportunity to sell off underperforming locations and closed 41% and 26% respectively. Together, WeWork, Regus, and Serendipity Labs accounted for half the coworking closings in the pandemic. This equates to 450 locations.

Operators like Regus and Industrious managed to weather the storm with closing rates below 10%. Regus’s extensive portfolio was able to absorb their relatively few closures. These performance differences may be indicative of opportunities offered by alternative business models that put a greater emphasis on management agreements and landlord partnerships.

Breather accounted for nearly half of all coworking closures, shuttering all of their more than 300 locations.

It is worth noting that the coworking closures of Breather, WeWork, and Regus had the greatest impact in New York City and San Francisco. Boston and Montreal were home to these large operators, which accounted for over 80%. All closed locations. The outsized impact of a few national operators in North America’s top coworking spaces highlights a crucial trend: High-growth operators won’t sustain the future coworking industry.

What Coworking Operators Didn’t Close a High Percentage Of Their Locations?

Some high-profile operators did not close all of their locations. IWG was the largest global operator in terms of locations. It closed less than 10% of its 1,300 North American locations under its brands Regus and Spaces. Franchisors Intelligent Office and Office Evolution closed less than 10% of the 40+ and 75+ locations they had respectively. Industrious, a leader in sharing revenues from building owners through management arrangements, closed less than 10% of its 90+ locations. Expansive Workspace, formerly Novel Coworking, has never closed any locations. It owns all the buildings where it operates.

Urban Areas – Coworking Closures

83% of closures were in urban areas where there are more flexible offices. These areas were also hardest hit by the pandemic. There was a sharp decline in employee commuting and close to zero office utilization in the second half of 2020.

Urban markets absorbed 8 of 10 of all coworking closures.

Primary Markets are hardest hit by coworking closures

High closure rates were experienced in transit-dependent, densely populated markets, which were the focal point of high-flying operators with high growth potential. Eight cities out of the 30 largest cities in North America that Upsuite monitors have closure rates higher than the national average (21%).

A map showing all closed locations to see which operators and markets have been affected.

The highest rate of closures was in Kansas City at 45%. Next came New York City and San Francisco where 30% of all locations were closed. Low occupancy, poor performance, and social issues are all likely to be factored in coworking closings.

Closure Rates for Coworking rose significantly above the National Average in the Top 10 North American Markets.

We’ve seen a complete reversal in Upsuite’s prior report. It turns out that large cities aren’t immune to this phenomenon. In fact, the reverse is true. Closing rates in the largest coworking spaces have risen significantly since Q4 2020. They are now higher than secondary markets. New York City, San Francisco, and Los Angeles took 50% of all coworking closings in the top 10 North American markets. These cities had the highest number of coworking locations closing, with one-third of them closing. This is a sign that future investments will need to be based on newer business models like management agreements.

Atlanta and Toronto saw closures rates that were higher than the national average, with 25% of coworking spaces closing, while only 1 in 10 locations in Dallas Ft. Worth, and Houston closed. The Texas shutdown is shorter and office usage has returned to double the levels in Texas than it was in New York or California. Florida’s workspace market thrives with Signature Workspace leading the numbers. This may explain the regional differences.

Contrary to this, smaller secondary markets that have healthy economies and aren’t as transit-dependent or on the radar for high-growth operators suffered fewer closures. Signature Workspace is affected by the pandemic closures at a substantially lower rate than its competitors in the Tampa Bay area. These cities had closure rates at least half of the national average.

This post was written by Tara Kintz. Tara is a director at Signature Workspace which is a coworking space in Tampa. Signature Workspace, owned and operated by Cantor Fund Management, offers services and amenities such as private offices, flex space, co-working space, virtual offices, meeting/conference rooms, and more.

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