Going it alone, together

Samar Ibrahim doesn’t like her current office. Since February, necessity has forced her into a small space in the bowels of ABC Mall, Ashrafieh. She suggests meeting for an interview instead at Urbanista on the top floor. It’s fitting that she’s chosen a coffee shop as a setting – she sounds like her own ideal client. Ibrahim manages the temporarily closed Coworking +961, a shared workspace. An 11-year-old concept with activism in its genesis mythology, co-working is gaining popularity from Los Angeles to Singapore and even boasts its own unicorn in WeWork (valuation as of writing: $16 billion).

Disrupting work

In 1989, Mark Dixon observed demand. The official Regus story has it that Dixon saw so many people in Brussels working from coffee shops and hotels, he opened a serviced office business. The idea was simple: the professionally homeless (be they travellers in town for a few days, the self-employed or a small business who cannot afford a long-term lease) need a professional place to work. A private desk (or desks, depending on the size of the venture), shared office equipment, meeting rooms for rent, flexibility and reduced overhead costs were the main value propositions. And it worked. Regus went public in 2000 and reported 1.9 billion GBP ($2.77 billion) in group revenues for 2015. In 2005, Brad Neuberg was working for a startup company out of a Regus location and thought of a way to change the model: socializing. He called it “community” in a 2012 interview with Deskmag, a publication that dedicates most of its coverage to Neuberg’s increasingly successful concept. He was pitching work meets activism in a casual setting with a startup mentality, not a business center with beanbags and an open bar. When a reporter with the left-leaning US magazine The American Prospect covered co-working in 2007, there were but 12 or so co-working spaces globally (all in the US, compared to the estimated thousands around the world today). The author described a social movement, not a business model. Taking a dig at ‘fly-by-night commercial coworking spaces,’ the author questioned how long the “communities” being created would remain authentic, warning that “relentless commerce is the solvent that loosens the ties that bind us.”

The “community” aspect of co-working is still an integral part of the concept. A “Coworking Manifesto” – which explains that the people who use these spaces “envision a new economic engine composed of collaboration and community, in contrast to the silos and secrecy of the 19th/20th century economy” – continues to garner signatures, but disdain for the co-working space as a profit center seems to be on the wane. There’s no shortage of advice online about how to make a co-working space commercially viable. Karly Nimmo, founder of a failed space in Australia, offers concise guidance on the importance of marketing: “Build it and they will come is bullshit,” she writes on Deskmag.com. Lying just below the surface of Nimmo’s advice is again the notion of creating the right sort of “community” for the space one is operating.

As for interior design, co-working spaces tend to be open plan. The “community” is all about mingling, sharing ideas, networking and, for some, generating new business. Many spaces bill themselves as ideal launching pads for startups and a market study on nurturing the “knowledge economy” in a region of the US state of Wisconsin argues that co-working spaces are integral to building an entrepreneurship ecosystem. Co-working is part of the “new economy.” The “sharing economy.” Think Uber and Airbnb.

The business side

As a business model, both co-working spaces and business centers are at least partially a real estate proposition. The owner of an office can potentially earn more from the property by renting small portions of it – say 5 square meters per desk – to a large number of separate clients on a short-term basis than renting the whole space to one client on a long-term basis. Consider a simplified, hypothetical example: Executive found a 200 sqm office for rent in Verdun on ultimatebrokerage.com. It’s listed at $45,000 per year. If the owner rents the office to one client for five years, the property will generate $225,000 in steady, fixed payments over the course of the lease. If our property owner divides the space into 25 co-working spots available for $350 per month (ignoring for the moment alternate revenue streams), in five years it could generate $525,000 if operating at full capacity. The cashflow is not as stable, and that last “if” concerning operating at full capacity is a big one at the very heart of a co-working space’s commercial viability. Flexibility is a big co-working selling point. One can rent space by the day, month or year, particularly helpful for startups that may have fluctuating space requirements in their first few years or for those new companies that are not even sure they will exist next month or next year. Clients can pay for “undedicated space” – meaning there might not be an open desk to use – or spend a bit more on dedicated space. Many co-working spaces offer private offices as well, and are accessible 24/7. This flexibility is a draw for clients, but a risk for space operators.

Fuzzy numbers

Popularity of the co-working concept is undoubtedly growing. Deskmag produces a yearly “Global Coworking Survey” launched in 2011. The 2016 edition forecasts the number of co-working spaces worldwide to surpass 10,000 by the end of this year. Considering there was exactly one back in 2005, that’s arguably impressive growth. We must add, however, that Deskmag does not regularly publish a methodology for its survey, so Executive is not certain just how “global” the survey really is. It also doesn’t include a margin of error, nor are the exact same questions repeated year-on-year. For example, one of the most interesting questions (Is your co-working space profitable?) seems to have been asked only once in 2012 for the survey’s second edition. The one-time result, however, is promising. Slightly over 70 percent of surveyed co-working spaces self-reported reaching profitability after “more than two years in operation.” Respondents also noted that around 40 percent of their revenues came from services other than a desk with an internet connection (events, tickets to events, rentable meeting rooms and food and beverages, for example). In reporting the results of this one-time line of survey questioning, Deskmag notes it only offers data from privately held companies – meaning that even if the respondents were known, their answers could not be verified. Anyone trying to argue for the profitability of the model, however,  would no-doubt skip the survey results and point to the outlier: WeWork. Founded in the US in 2010, the company closed a $430 million investment round in March, according to the Wall Street Journal, that will help it push into Asia.

[pullquote]Slightly over 70 percent of surveyed co-working spaces self-reported reaching profitability after “more than two years in operation”[/pullquote]

Co-working in the local context

To date, co-working spaces have not been widely profitable in Lebanon, but part of that is by design. Ibrahim, manager of Coworking +961, explains that the company is a partnership between the Bader Young Entrepreneurs Program and the MIT Enterprise Forum for the Pan Arab Region. She says Coworking +961 is more about serving the country’s entrepreneurship ecosystem than being a successful business in its own right. At the end of January, the venture left the building near the Sursock Museum it had been renting since July 2013 in search of more stable lease conditions, she tells Executive. They found a new, 250 sqm spot in Saifi Village (on the edge of the Beirut Central District) with a five year lease and expect to open after around $50,000 in renovations are finished, Ibrahim adds.

AltCity – which used to operate a co-working space in Hamra – also temporarily closed its doors. While founder David Munir Nabti was not available for a full  interview, in a brief exchange he offers: “[Co-working spaces are] great for the community and the [entrepreneurship] ecosystem, but it’s hard to make them profitable.”

Richard Azoury, head of Solidere’s business development unit, tells Executive that the real estate company’s co-working space – Cloud 5 – is typically not even self-sufficient. It covers its own cost at 100 percent occupancy, he says, noting that is “very rare,” with occupancy typically around 70 percent. The space holds around 50 people, he says. Profitability of Cloud 5 is not exactly the goal, he explains. The space is limited to small companies or individual workers in the information and communication technologies (ICT) field and aims to be a home to startup companies that grow into businesses that require more traditional office space (ideally in a Solidere property). Walking through the all-but-deserted Maarad district of Downtown (surrounding the parliament and, since the middle of 2015, accessable only via military checkpoint), Azoury argues that the empty street-level storefronts that used to house restaurants and shops could be a techy business hub. While the prospects of that happening any time soon look remote, it’s the argument you might expect from a real estate company. Mouhamad Rabah, general manager of ZRE, makes the same argument. ZRE manages the Beirut Digital District (BDD), and Rabah sees the same kind of pipeline potential in a co-working space. That said, the district currently does not offer any co-working space. He explains that ZRE left the management of co-working in BDD to Berytech, ZRE’s partner, along with the Ministry of Telecommunications, in the development. Instead of opening a co-working space in BDD, Bertytech used the space to open Speed@BDD, a startup accelerator, Rabah says. Berytech operates its own co-working space outside of Beirut – the Digihive – but the person responsible was not available for an interview. That said, in an email exchange to try arranging a meeting, Executive did learn that “Digihive as a concept is being relaunched by Berytech.”

New entrants

Up in Byblos, Tarek Matar is soon to launch a new co-working venture called “Neopreneur.” And he speaks the social movement language as well. Referring to friends with entrepreneurial enterprises, he says the co-working space idea was born in part because, “they want an open space to share ideas and discuss.” He’s renting space in a hotel with the aim of hosting a co-working space alongside a hybrid incubator/accelerator for startups. Three new companies are already onboard to join, but he insists the space is “a social initiative. The model of co-working isn’t profitable. You can’t make a high return on investment. You barely break even. But the programs are profitable.”

[pullquote]“As more new startups were coming up, the real estate [market] was not responding to the needs they had.”[/pullquote]

Some beg to disagree. While recognizing the need to create a vibrant community, profit and scalability are key deliverables for Zina Dajani, co-founder of Antwork – a new co-working space set to open this summer on Spears Street, near the Hamra district. Antwork is a member of the DNY Group, of which her husband Tarek is chairman. The new co-working space has a long-term lease (10 years, renewable for another five) and anchor clients from DNY Group that will take up “30 to 40 percent” of the 5,200 sqm. These anchor clients will help limit the volatility risk inherent in such a venture, let Antwork start with “a healthy cash flow,” and provide “traction” for the space, she explains. Investment into the space (which includes renovation and some new construction) should be recouped in the middle of year two, Dajani estimates, citing WeWork in describing Antwork’s growth plans (being present in 20 countries in 10 years). And unlike many of the local co-working spaces that came before it, Antwork will understand the opportunity to make a little more.

“All our services are revenue streams,” Dajani says.

The more the merrier?

Reliable statistics, as always, remain a problem in Lebanon. Dajani sounds a bit like Regus’ Mark Dixon when talking about the growing number of Lebanese working from coffee shops and new startups being created with support from central bank circular 331. She admits she has no hard numbers on Antworks’ potential client pool, but it doesn’t phase her. Middle East Venture Partners – which is managing a $70 million fund of 331-compliant bank money – invested in DNY Group, so she believes this relationship may help feed clients into Antwork and the anchor clients – themselves all startups – she thinks will help kickstart the community Antwork wants to create. Dajani comes from a real estate background, and offers market insight she says also plays in the space’s favor. “As more new startups were coming up, the real estate [market] was not responding to the needs they had. One of which is the agility, the quick access to more or less space when you need it,” she says. This agility is exactly what co-working spaces offer and why they are arguably ideal workspace models for young companies.

Solidere’s Azoury and ZRE’s Rabah are less convinced. Azoury says he simply hasn’t seen a big enough boom in new startups to justify the creation of significantly more co-working space in Lebanon. Rabah declares, “Do we need 10 co-working spaces? No.”

Facts on the ground, of course, will prove who’s right on the demand side, but there appears to be no disagreement on the overall purpose of these spaces. While Executive did not ask if they read it, everyone interviewed for this article seems to agree with the first two sentences of the “Coworking Manifesto”: “We believe that society is facing unprecedented economic, environmental, social and cultural challenges. We also believe that new innovations are the key to turning these challenges into opportunities to improve our communities and our planet.”

This article was amended on May 13. We mistakenly misnamed Solidere’s co-working space and neglected to clarify that AltCity plans to re-open soon. Executive regrets the errors.