:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/CGQLQ62PK5HARNWYEK5E3OCLEY.jpeg "Photo: Courtesy of WeWork")
Bloomberg Línea — The bankruptcy of WeWork, one of the biggest global players in the co-working space business, has cast doubt on the future of the way of working as the hybrid work model gains traction and companies cut costs in the face of high inflation and still-high interest rates.
:quality(75):focal(2081x122:2091x132)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/YTLIA4ISG5G3PPCRH4UBZQSI4Q.jpg "Flexible Business Model Is Brazil’s Differential, Says CEO of WeWork LatAm")
“We have seen co-working operators striving to boost occupancy, which is reflected in a mixed balance of closures and openings,” said Rodrigo Torres, director of research for northern Latin America at global real estate services firm JLL, in an interview with Bloomberg Línea.
Torres points out that, although there have been closures of numerous co-working spaces in the region, “this is mainly due to a reconfiguration of supply”.
As a result of the pandemic, companies in the sector such as Colombian company Owlo closed operations, despite having plans to expand with openings in different Latin American markets.
However, new spaces have also opened. In Colombia, the expansion of Regus and the consolidation of Tinkko, an operator of local origin with the largest presence in the country, stand out.
In the region, local firms are competing to generate trust in the face of the advantage of multinationals such as WeWork, which have greater financial backing and are also benefiting from the preference of global brands due to their established presence and recognition.
:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/SPJGAP4Q5JHXXOWRVCFGBMOUSE.jpg "Rodrigo Torres, director of research for northern Latin America at global real estate services firm JLL says the co-working model adapts to emerging markets such as Latin America due to financial and contractual flexibility it offers.")
Currently, companies in the sector “are closing underperforming locations in order to focus their operations on centers that are more attractive to users, along with more competitive rates. However, new spaces have also been opening,” Torres says.
The number of shared spaces globally contracted from 19,421 to 19,345 between 2020 and 2021 due to the effects of the pandemic. However, projections by German portal Statista suggest that by 2024 there will be some 41,975 co-working spaces worldwide.
Statista projects that the size of the global co-working space market will grow from $9.3 billion in 2023 to $24 billion in 2030.
In Latin America, Mexico City, São Paulo, Bogotá and Santiago are the cities in the region with the largest presence of corporate-grade co-working spaces.
But Sebastian O’Ryan, CEO of Chilean co-working space company Co-Work Latam, told Bloomberg Línea that the percentage of flexible spaces relative to total office square meters is still very low in Latin America (less than 5%), and he believes there is still plenty of room for growth.
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“In turn, in Latin America the penetration of flexible spaces is 3%, much lower than what we can see in the United States,” O’Ryan says.
In Latin American countries such as Colombia, the inventory of flexible spaces is close to 142,000 square meters, distributed in Bogotá (66%), Medellin (29%) and Barranquilla (6%), according to data from JLL.
In an interview with Bloomberg Linea, the manager of WeWork Colombia, Juan Carlos Peñaloza, said that this type of space will continue to be used more, because the pandemic boosted the trend.
“People and companies are demanding this type of work model. It is absolutely sustainable. Before, this was called the future of work, and it was what people dreamed of, to be able to rotate, to work today from Santa Marta and tomorrow from the office. That kind of thing is here to stay. It is a reality, it will continue to happen,” he added.
Co-working and job flexibility
The labor market is undergoing a reconfiguration, and the coming transformations could define much of the fate of these co-working spaces, at a time when, although the hybrid or face-to-face modality is once again gaining ground, remote hiring is gaining ground.
Spokespersons from recruitment and payment services firm Deel explain that, out of a total of 300,000 contracts analyzed around the world, an average of 90% of those positions are for remote work and, according to Deel, this average has been maintained over the last four years, with minimal variations, which means that even after the pandemic, remote work continues to consolidate.
Even so, Deel considers that co-working spaces can complement this dynamic very well “in a scenario in which flexibility becomes the new currency”.
According to JLL’s Flexible Space Landscape report, the main reasons for choosing this type of location include the need for short-term spaces (31%), small payrolls (29%), workers in constant movement (12%), capital expenditure savings (11%) and location (10%), among others.
O’Ryan highlights the lessons learned in the pandemic of hybrid work and flexibility at the contract level, which contribute to the fact that more and more companies are opting for more flexible office schemes, in which “they can provide their employees with several options to work, where they are most comfortable or have contracts that allow them to grow or shrink according to the economic ups and downs of the moment”.
“The demand has changed, today flexibility is not only needed by start-ups, small or medium-sized companies, but by all companies, including large ones. Therefore, we see the interest of large companies to use flexible spaces, but with the caveat that they want more privacy and presence of their brand,” he said.
Before and after: How will the co-working model evolve?
The CEO of Co-Work Latam says that the coworking market in Latin America was initially characterized by many local players, but with very low investment.
In his words, there were “several isolated projects, without a growth plan or the necessary capital to grow. Many of these projects disappeared during the pandemic, leaving mainly larger players that were able to survive the confinements that took place in the main cities of Latin America”.
In this context, JLL explains that the traditional model in which co-working companies signed lease contracts with landlords is taking a back seat in the face of the rise of operating contracts.
WeWork did not fail because of its business model per se, but rather because of its aggressive growth strategy, without looking closely at the structure of its long-term leases, and because the pandemic hit, in which the entire real estate industry was affected.
Sebastián O'Ryan, CEO of Co-Work Latam
He points out that under this model, both risk and profits are shared, and capital investments are paid for, in most cases, by the owners. The operator, on the other hand, concentrates its resources on operation and marketing, leveraging its platform and economies of scale.
For Rodrigo Torres of JLL, the evolution of the co-working model in Latin America “reflects the maturity of each office market, the recent favorable economic dynamics of these economies and specific elements of each market”.
He cites the specific case of Bogotá, where the co-working boom coincided with a supply cycle of office space, which allowed “operators to sign leases at competitive prices in an environment that favored users”.
How the co-working model adapts to emerging markets
JLL’s Torres believes that the co-working model is well suited to emerging markets such as Latin America because of the contractual and financial flexibility it offers.
In addition, due to the high concentration of companies in constant growth, with marked exposure to shocks and economic cycles, companies see difficulties anticipating their space needs in the medium term.
“Markets with a lower level of development and with predominantly local users have a lower presence of corporate-grade flex space. This is the case in Ecuador, most Central American capitals, Santo Domingo and San Juan in Puerto Rico. However, even in these markets there are local companies that provide coworking solutions tailored to local preferences,” he said.
O’Ryan concludes that although the WeWork experience has influenced the perception of co-working spaces, the market in Latin America remains dynamic and with opportunities for growth.
“If we add to this the vacancy of offices, the model of flexible spaces will continue to grow at double digits, at least in the next two to three years, in a strong cooperation between building owners and operators to create a model that is mutually beneficial,” he added.
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The key ingredients for success for the co-working model:
- Adapting to local needs: O’Ryan explains that WeWork’s model considered taking large strategic locations, so they were often willing to pay a premium value to obtain them. He believes that this means that in the face of cycles of lower demand and uncertainty, the company is not flexible enough to be able to adapt.
- Offering services that add value to users: Beyond simply providing a place to work, O’Ryan believes that successful co-working spaces seek to offer additional services and benefits that enhance their users’ experience. By providing services that directly address users’ challenges and aspirations, co-working spaces can differentiate themselves and build a loyal and satisfied member base. In this regard, he says it is key to differentiate members according to their needs.
- Building strong communities: O’Ryan says that building strong communities in collaborative spaces involves a combination of physical elements, events and an organizational culture that fosters collaboration and mutual support: “When members feel connected and supported, the collaborative space becomes much more than a place to work; it becomes a community that drives the success of its members.
-- Translated from the Spanish by Adam Critchley
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