Corona hits the German coworking scene with a delay

The betahaus in Berlin-Neukölln had to close already | Image: betahaus

We will only see what impact the Corona pandemic has on the German coworking scene in the coming months. The first domino has fallen with Berlin’s betahaus. The pandemic forces, which broke out in spring 2020, are only now showing their effects. There are various reasons for this, starting with the business model of coworking spaces. It suffered losses but never wholly broke away.

The business model of a coworking space is based on three pillars: First, memberships of individual users, similar to those in a gym. Second, the exclusive allocation of offices to teams and startups. And third, the rental of event and meeting space, which is meant both smaller meeting and workshop rooms and large-scale event halls.

According to Deskmag, each of these pillars accounts for roughly one-third of a coworking space’s revenue. What share of total revenue the pillars account for depends on the property itself and local demand. There is a high demand for offices and event space in large cities, so memberships can also account for less than 10 percent of revenue. For coworking spaces in rural areas, it can be the other way around.

Self-made problems

These dependencies also limit the scalability of the business model. The concept of a coworking space can often only be copied one-to-one in a few other locations. In addition, fixed costs increase with each additional site. However, to increase profits, many coworking providers in major cities have opened larger spaces in recent years and at higher rental prices.

The calculation worked out, as even new locations were booked out within a few weeks. The focus was on team offices and event spaces because these have the best return on sales. Berlin’s betahaus, for example, made up to 40 percent of its revenue from events. Classic coworking, i.e., independent workers sharing infrastructure, was economically unimportant in comparison.

Due to the pandemic, event sales completely collapsed within a month. To this day, that business sector is down. For team offices, the aftermath dragged on for months. Teams from industries that were hit hard and fast by Corona were also quick to cancel their contracts. Others only did so when they could no longer afford the membership fees. New teams first tested working from home before considering a coworking space.

About 80 percent of all coworking spaces saw their revenues drop during the pandemic. According to a survey by Deskmag, coworking spaces lost about 40 percent of their income during that time. Smaller coworking spaces in small and mid-sized cities also suffered from Corona, but to a lesser extent than coworking spaces in large cities because of smaller spaces at lower rents.

Delayed consequences of the crisis

But few coworking spaces in Germany closed during the height of the pandemic. Of those that did give up, some took the opportunity not to renew expiring leases. The future of the coworking concept seemed too uncertain in the spring of 2020. But since the Corona pandemic began, an estimated two to three times as many coworking spaces have opened. And that’s in the middle of a pandemic!

Today, we know that coworking will be an even more critical part of the future of the workplace. But that future isn’t here yet. For one thing, because Corona isn’t over yet. For another, the companies themselves want to get out of their leases first before they restructure for a decentralized working world. This process must also be accompanied culturally, which will also take time.

Berlin’s betahaus has since filed for insolvency and entered into a self-managed process to survive. Other urban coworking spaces will have to take similar steps in the coming weeks. We will see more bankruptcies, business closures, site closures, repurposing of space, and takeovers by larger coworking chains backed by investors.

After Corona, the coworking market in major German cities will look different. There will probably only be large coworking chains scaling with venture capital and small, operator-managed coworking spaces. Everything in between, the mid-sized coworking spaces with spaces between 300 m² and 5,000 m², will probably have disappeared. Among them, many well-known brands that have shaped the perception of coworking so far.

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