Does a Coworking Space Actually Save Startups Money?

The Wall Street Journal reports that commercial real estate prices are reaching peak levels in 2018. Buying or leasing an office space is getting trickier, and it's often the first major cost that startup and small-business owners run into. The majority of entrepreneurs either face the option of taking out a small-business loan to lease or buy a space or rent a coworking space. Coworking spaces have exploded in popularity in recent years given how affordable of an option they are compared to traditional office spaces.

How much do coworking spaces cost?

Coworking spaces allow for multiple businesses to work side by side. This allows for occupants to split the costs of rent and avoid expensive upfront costs like down payments. In addition, coworking spaces also offer benefits like high-speed internet, electricity, 24-hour office access, daily cleaning and more.

Members will pay for a coworking space usually through a monthly membership, and memberships are typically tiered based on the services they provide. For example, most coworking spaces provide "hot desks," dedicated desks or private offices. A hot desk simply guarantees that the member will have space at the coworking space, but the desk likely won't be the same every day.

Cost of coworking spaces in NYC

First, we took a look at the cost of coworking spaces across cities with high concentrations of coworking spaces like New York City, Austin, San Francisco, Atlanta and Denver. We then analyzed the costs of different memberships from five of the largest coworking chains in each of those cities. The memberships can be generally broken down into desks and private offices.

How much does leasing an office space cost?

For those same cities, we took a look at the latest average cost per square foot to lease an office space. According to this study, an average desk space is approximately 114 square feet per employee, while a private office is typically 280 square feet. We used those measurements and leveraged the average cost per square foot to lease an office space in each respective city to generate the costs below.

Average cost of coworking spaces across multiple cities

How do the two compare?

For both a desk or a private office, coworking looks to be far cheaper than leasing an office space. The average size of an office in the U.S. for multiple employees is a bit over 1,400 square feet. If we keep the assumption that the average desk takes up 114 square feet, the average office can fit 12 individual desks. To make the comparison simple, we compared the average cost to lease an average-sized office to the average cost of a desk at a coworking space across the five cities we examined.

Average cost of a coworking space vs. a traditional office

On average, coworking becomes less advantageous than leasing a traditional office with more than 12 desks or employees. You don't need to pay incremental rent with a traditional office just because you're hiring more employees as long as they can comfortably fit. Of course, we're only comparing the two from a pure cost-per-square-foot perspective and not accounting for the various side perks a coworking space also provides.

Startups with fewer than 12 employees can save on average $2,700 per month by using a coworking space instead of leasing an office. They won't need to worry about down payments, administrative tasks, utilities, etc. Downsides include limited customization, little privacy and expensive scaling as the business grows larger.

If financing a coworking or traditional office space is a concern, consider a small business or commercial real estate loan.

Methodology

We analyzed the price points of coworking chains in different cities, the average cost by square foot of office space by city and more. We also made a number of simplifications to help make the information more standardized. For example, coworking spaces will usually offer either a hot desk or a dedicated desk. However, we averaged the costs a hot desk and a dedicated desk to help make the comparison to leasing a traditional office space easier.

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