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Community and connectivity nurturing productivity?

Lebanon’s hottest entrepreneurship ecosystem asset

by Thomas Schellen

Amina, Rachelle, and Peter are young urban professionals active in graphic design, in digital marketing, and in remote consulting. When Executive makes their acquaintance, they have stationed themselves at a long office table in the foyer of a co-working space at the Beirut Digital District (BDD). In this quasi-public space, they are working, each on their own account, a few meters away from two containers (construction site type) that are holding further “hot desks,” short-rental desks in one of the BDD’s dedicated co-working areas.

Hot desks are non-individually assigned work spaces which, in the case of BDD, are at the disposal of the office space provider’s registered subscribers, such as freelancers and micro-entrepreneurs, on a first-come first-served basis. Not a place where you settle down with your favorite potted plant, coffee mug, or other personal keepsake, but an instantaneous environment for individual creativity. “I am a graphic designer and work in creative spaces. What I love about this community is that it is an open space, which makes it easy to connect to people and move around,” Peter volunteers.

The universal questions on anything work-related today are of course about power and basic connectivity. Asked if it was community or infrastructure that drew them to the BDD co-working space, Rachelle interjects that for her, the motivating fact was “definitely infrastructure,” and Amina concurs. Peter, while reiterating that community is crucial for him, also concedes that co-working would not live up to its entrepreneurial promise if it weren’t rooted in the reliable provision of connectivity and all the productivity boosting that elements, even as basic as electricity in these difficult times, can facilitate. 

All three – whose professional focuses are as different as their characters, which already at the first encounter reveal themselves as ranging from studious to dynamic – agree that the community is something they benefit from, but confess with a laugh that their character disparities of ebullience and quietude are recipes for short disruptions of attention in the confined co-working area.

A sizzling need for digital work safety

And the young professionals who have all opted the last few months or even days to bet on co-working, are far from the only ones. According to BDD’s chief growth officer Ralph Khairallah, Beirut’s preeminent cluster at the juncture of real estate and tech entrepreneurship has, by mid-2021, reached overall greater occupancy than at any previous time in the almost 10 years of its existence and is now populated with at least 1,600 to 1,700 persons – entrepreneurs, NGO-staffers and employees at established enterprises that took refuge at BDD after the Beirut Blast.

In terms of its dedicated co-working areas that are distributed over three of its buildings, the district has reached capacity and has to waitlist people wanting to sign up for a co-working place. “We are fully occupied and have a waiting list of people who want to join BDD,” he enthuses.

High demand is not just the situation at BDD. Antwork is a co-working space that was established in 2016/7 in a restored building cluster along West Beirut’s Spears Street and that has since opened additional locations in Beirut (an ecommerce-centered space in Dora), Saida, Limassol, and, this spring, Amman. At Antwork’s main Spears campus, the idea of co-working saw – in a nice parallel to the sources of the demand wave seen at BDD – its greatest increase in acceptance by the entrepreneurial sector, business community, and third sector entities from the beginning of this year, says Zina Dayani, the enterprise’s CEO.

According to her, Antwork, with 367 desks and private offices, is 100 percent full and has a growing wait list, similar to BDD. “The wait list is much longer when comparing mid-2021 to end of last year,” Dayani tells Executive.

It is not only in central locations where co-working is seeing new demand, internationally as in Lebanon. Suburban and academically affiliated spaces are usually smaller than the leading co-working operations in an urban market but they have their own appeal and clienteles. However, independent co-working spaces that are somewhat remote from the real estate-tech entrepreneurship complexes in the middle of Beirut, for example the Submarine co-working space in the Jnah district, also saw an implosion of demand in 2020 and reversal of this downtrend into new growth in the first half of this year. 

“At the beginning of the COVID pandemic and the devaluation of the currency, most co-working spaces, and I have seen it at the Submarine space, were battling with COVID-19 restrictions and devaluation of the currency,” says Nour Alwan, an entrepreneurship ecosystem enabler who has been involved with co-working and entrepreneurship since the middle of the past decade. 

In her experience at Submarine, the overwhelming drop in usage turned into new demand on the strength of the co-working space’s investments in infrastructure – a buildup of supply redundancies and security in generators and internet connectivity. Ideally, co-working spaces should have both, the spirit of community and the infrastructure, Alwan notes, “but in Lebanon, you cannot have it all. Today, under the circumstances, infrastructure is key. Startups won’t be able to work, won’t be able to produce and profit if they don’t have the appropriate infrastructure.”

Also at the Smart ESA entrepreneurship hub, which is attached to the École supérieure des affaires (ESA) in Hamra, co-working demand surged in 2021 and the academically-minded hub has been filled up to about half of its 100 seats. With interest in co-working facilities being on the increase, the remainder of available seats will in part be kept from the market for use by Smart ESA’s cohort of newly admitted startups, chief executive Jihad Bitar tells Executive. 

“Co-working at Smart ESA is seeing renewed demand, but different than before. Teams split their physical attendance time for different reasons that range from [scarcity of] petrol to employee demand to work from home,” he explains. Making previously unheard-of requests, such as seeking spaces to seat half of their teams in rotation, startups are requesting an increased degree of flexibility from operators of co-working spaces, he adds.

With their approach favoring, albeit sometimes chaotic, community over ploughing away in isolation, Peter, Rachelle, and Amina, the three who Executive met at BDD co-working, are clearly part of a large and growing crowd of the digitally working who are receptive to this work environment. Moreover, they are also examples for the added twist that favors this co-working environment in Lebanon. This crucial twist is availability of air conditioning, internet, and profane electricity.

Notwithstanding the lockdowns-induced disruptions which last year deterred clustering of people in physical offices and the related accelerating trend towards home offices and remote working in Lebanon as in most countries, it appears to be the specific need of basic entrepreneurship infrastructures – which in the case of Lebanon are increasingly scarce and cherished amenities – that has this year visibly accelerated the demand for co-working spaces in the local entrepreneurship ecosystem. 

Another notable external factor in favor of Lebanese co-working spaces is the confluence of demand for stable and safe basic tech infrastructure with an increased desire of the country’s digital-era professionals to earn hard cash by working remotely for foreign clients. This combination has firmly positioned co-working spaces as the best bet in the ongoing recovery and realignment of the Lebanese entrepreneurship ecosystem. For an interesting but less important additional internal driver in favor of co-working culture in Lebanon, one can further speculate that the convivial character of this work environment is a good match with the general ease by which many young Lebanese interact socially.

Digitally promising but all new? 

While co-working is associated with the internet, tech entrepreneurship, and the culture of the digital age, neither the basic idea nor the economics of co-working seem to actually be innovations of the digital age as much as they are twists on a very old story of productive work. The need to find a shared place to work under the social mores of the respective age might, for example in the industrial era, have been met in a profoundly physical venue, a place as venerated as the dusty halls of a university library, as exclusionary as a restrictively administrated club in the city, or as convivial as a café on Vienna’s Ring boulevard.

In another, longer gone, era, what the digital era calls a co-working hub could even have been happening at an Athenian school of philosophy, such as the academy of Plato or its nearby competitor, the garden of Epicurus. But whatever the name by which the activity is known, clustering of human creativity, economic agency, relevant skills and mentors is core to the productive aggregation of intangible human and social capital of any economic era, be that pre-capitalist, industrial, knowledge, or post-knowledge economy. In this sense, irrespective of the period’s label, collaborative spaces for economic activity remain manifestations of human capacity for organization of labor as a task that is modulated by the tense interplay of individual ambition and team work.

From the macroeconomic and macro-social perspectives, constituent parts of the collaborative work narrative are the division of labor, the clustering of comparable skills into an expanded and easily accessible labor pool, the ambivalent practice of rentierism, and the financial dictates of matching revenue prospects with long-term obligations. Ignoring any of these elements of productive work comes with a high risk, and in some socioeconomic settings near certainty, of either moral or financial peril.

Co-working challenges for Lebanese entrepreneurs

In the 1990s, when computers and ICT connectivity made rapid and decisive inroads into life in Lebanon, early local varietals of digitally enhanced co-working could have been the internet cafés of Beirut that were popular among youth, or hospitality venues with WiFi, such as the basement of Starbucks in Hamra. The first serious buds of co-working culture in Lebanon came to bloom a mix of internet-cafe cultures and self-funded private initiatives in the 2000s, roughly at the same time as the concept started to gain traction internationally with some very large investments into co-working startups such as US-based and famously Softbank-funded WeWork.  

The next decade infused the nascent Lebanese entrepreneurship environment with the, predominantly financial, vigor that was sparked by the famed Circular 331 of the Banque du Liban, Lebanon’s central bank. Along with new venture capital firms, incubators, accelerators, and the birth of the Beirut Digital District, co-working spaces became noted propositions for builders and mappers of this new entrepreneurship ecosystem. 

But while some international co-working operators, again most notably WeWork, achieved meteoric growth in the early 2010s, the local market of shared office spaces, although successful of sorts, was less ebullient. Some concepts that emerged in the past decade – such as a plan to establish a journalism co-working hub – fell victim to circumstances. Several newly created, small co-working spaces for startups did fold after a year or two.  And in terms of cultural resistance, there could be discouraging responses with which established businesses demonstrated their attitude, or lack of a clear grasp, vis-à-vis the concept of digitally powered third-party work environments.  

Ergo, Lebanese co-working entrepreneurs, from visionary community builder altcity to the top players such as Antwork, encountered challenging periods already before the country got submerged by crises. According to Dayani, after two years of early growth at Antwork, 2019 from its first month was the venture’s most challenging year in financial and operational terms. “I remember how in our first board meeting of the year [2019], we had to discuss doing cost savings and doing everything we can so we can survive that year. We were looking to raise funds and people were not responsive.  Everybody had cash problems. Liquidity was very scarce even at the smallest levels. Entrepreneurs and startups were finding it hard to make commitments,” she says, noting how these difficulties foreshadowed the stresses that the entrepreneurship ecosystem and the entire Lebanese economy would be exposed to in the latter part of the year.

The inflection point

In contrast, in 2020, the year when everything morphed from entrepreneurship ecosystem 1.0 (system 331) to ecosystem 2.0 (system non-331) Antwork passed through a positive inflection point. This shift followed soon after the detrimental first shocks of coronavirus lockdown scenarios had passed. Potential tenants of co-working spaces suddenly showed themselves as hyper-sensitive to risks that they had never felt before. “They wanted to feel safe, and the touchless experience became a big thing, [in contrast to before] when we had it and nobody understood it,” Dayani says.

The idea of what she calls “touchless” interaction in running an enterprise at Antwork suddenly made sense to people who had hitherto scorned it, Dayani says. She adds that she sees the hybrid model of home office and physical presence at an office not as an “either-or” choice for enterprises but as a convergence of varied needs, for the accommodation of which the Antwork platform has been developed.

At BDD, the initial shock of COVID-19 was equally severe but soon replaced with desire for hands-free office solutions by ecommerce companies and other digital business that started thriving in the pandemic. “COVID affected us severely and people stopped coming to their offices. [But then] we got businesses that focuses on the touchless economy, which means they have technology-heavy needs,” Khairallah tells Executive. 

Concurring with Dayani’s perspective that the hybrid model looks strongest for setting the future of co-working, he adds that academic research into companies’ needs for future office work is something that is being undertaken in Lebanon in partnership of AUB and BDD. “Co-working is changing but definitely becoming more important. What we are seeing [in terms of corporate survey responses to co-working research] so far, is that hybrid is the preferred option. People have gotten used to working at home, but they need the office and need a co-working space at the office,” he comments. According to him the coming models of hybrid work environments will have to satisfy new and complex needs by offering operational solutions as well as by creating new hybrid work cultures which providers such as BDD could develop in partnership with enterprises and large corporations.

Green shoots and questions

A further indicator for the appeal of co-working as local investment option because of the large demand for creative work opportunities by tech talent in conjunction with an oversupply of vacant spaces that can be repurposed for co-working was the recent inauguration of a co-working space in another Beirut business cluster. At Galaxy Center, a shopping mall, boarded-up windows and dormant escalators make for a forlorn atmosphere, with just one cafe open for business. Here, Smart Spaces, a new co-working space was set up with capacity of 65 spaces and support structures, occupying two floors of a former retail clothing store.

For the operator of the new space, investments in fit-out and a solar roof for electricity generation was an opportunity to attract talent from the area that could use the space for a symbolic monthly subscription fee of $10 and possibly be activated to fill needs of the center’s corporate parent group. The co-working space is geared towards advertising related apps, Chief Executive Jamil Ghaith tells Executive.  “We are a big offshore Lebanese company. We have our kitchen here in Lebanon but we operate in Middle East and Europe. We have platforms for freelancers to do online campaigns and already outsource some work to Russia and South East Asia. So we thought it is a good time to get some Lebanese people,” he says.

A nagging question in the cum-corona-virus world is of course how far work patterns will revert to the old ways. From where Dayani is positioned, the new coworking culture is here to stay. She says that he impact of Covid-19 has given “everyone a very clear idea of what hybrid and co-working means. It became more accepted and more interesting to all types of businesses. We feel that we are very well placed to capture this momentum, because we have been preaching this for the past four years.” Dayani concedes, however, that the enterprise is now faced with the question on how to take this model forward. “This is what we are working on,” she says, hinting at further expansion in country and Mediterranean peers.  

Economic tremors reshape co-working profitability

The limited exposure to property risk in the current economic situation might be to the advantage of the, in international comparison, small or medium co-working operators in the country. In principle, what essentially is a for-profit real estate venture before it can be a community, a co-working space must make profits from tenancy. But a large operator invariably has to balance long term obligations on the grade A office properties they own or, more often, lease with the uncertain timeframes of short-term tenancy that can fluctuate immensely.

This has the effect that profitability of co-working operations tends to evaporate during crises. Thus in the course of the global coronavirus recession of 2020, large and small operators all around the world suffered setbacks that have yet to be recovered with new demand. At least one very large listed co-working operator has recently reported significant losses even for the first and second quarters of this year. IWG Plc, an international office space holding headquartered in Switzerland and traded in London that operates well-known co-working and office rental brands (most notably Regus and Spaces), in August announced a widening of losses for H1, 2021, to 183.4 million pounds Sterling ($250 million), from 176.2 million a year ago.

Real estate investment experts also were not horribly surprised that, despite the prophesied revolutionary synergies of real estate and tech entrepreneurship in the co-working narrative, the short history of digitally empowered co-working spaces in the 21st century has already produced one very large hype-and-bust scenario. This was the notorious case of the aforementioned globally operating WeWork – a 2010 co-working startup that rose to unicorn status, peaking at $47 billion in presumed value in January 2019, only to come down to a valuation of $12 billion or less within the space of eight months.

The moral dilemma of visionary rentierism

Morally, the WeWork story went into hubris mode in its own way with a vision of a new future that the match of real estate and co-working would be creating. Its marketing blurb promised to “revolutionize the way people and companies work.” This purported culture or ideology of “we,” which manipulated millennials’ thirst for community, was for some critics interwoven with a nasty narrative of the WeWork co-founder Adam Neumann as a self-proclaimed tech messiah and his allegedly brainwashed acolytes.

Underlying the hype of the co-working narrative, however, is the same old question of rentierism. Both as social and as financial assets, for-profit real estate can produce genuine returns only on basis of the creation of value-added. This added value must enlarge and ideally exceed the return which is produced solely by the fact that any clustering of economic power in an urban setting brings rental income to the owner of any property, such as an office, located there – without such proprietor having necessarily a justified moral claim to this ‘economic desert.’

Economic rents are gains from agglomeration that accrue to property owners and to professionals, and research has highlighted the growing contradiction between the persistently spatial and predominantly national determination of policies with rent-producing effects and the growing internationalization of social and digital networks that cannot be adequately taxed on grounds of national policies. In other words, economic rents are costly and unproductive distortions of digital transnational economies.

This dilemma of unearned and undeserved rent taking can easily cause inequity in productivity conditions, namely as soon as a productive hub is deprived of public investments that depend on the volume of taxes that are collected – but under a digital economy with many remotely working professionals not collected in fair form at the point where economic value is added.

For community-trumpeting operators of commercial co-working spaces, this growing dichotomy between public involvement (including taxation and investments) and productivity might, quasi by way of a balance sheet of tangible and intangible profit and loss, raise a dual economic and social survival question of a co-working space’s sustainability: Will operators then in the long run have enough foresight to, by continually reinvesting and developing even in absence of adequate public investments and policy incentives, sustainably add more value to its tenants’ productivity than it extracts in private profits?

The question internationally appears to have near-term macroeconomic implications up to the level of taxation and management of public goods. For local operators, however, this intriguing systemic question is in all likelihood moot. Much closer to the survival question of co-working spaces is the here and now of the Lebanese economy. According to Khairallah, the multifaceted crisis of Lebanon brought an even larger load of challenges to co-working operators as stakeholders in the entrepreneurship ecosystem. These challenges were the COVID-19 pandemic, the thawra protests, the banking and liquidity crisis, the demise of funding backed under central bank Circular 331 plus the impact that this caused on the entrepreneurship ecosystem, and lastly the instability caused by economic political malaise of Lebanon.

Most of the tornado that disrupted co-working operators along with other stakeholders in the Lebanese entrepreneurship ecosystem must be accepted as external shocks that operators could do little to avert, but some of the fallout was perhaps managed better by co-working operators than by businesses with less entrepreneurial mindsets. Co-working operators have told Executive that as far as the operational detail of profitability of local co-working spaces in the 2020 economic crisis, they handled the lira and liquidity quagmire with a lot of flexibility and a strong dose of understanding for their clienteles. 

“We did very good cash flow management during the period when we were getting paid in lollars as well as Lebanese lira,” says Khairallah, emphasizing that BDD accepted shouldering of many costs because it made “efforts to maintain a community rather than just a rental [property].” At Antwork, tenants were accepting that the co-working operator has moved to “adjusting prices every few months,” Dayani says. She adds “We started adjusting [rates] with new contracts but until today allow anyone to pay how they want, in Lebanese, checks, transfers, fresh dollars, and we are very flexible on payment terms.” 

According to what both operators tell Executive, the reorganization of tenancy relations was done in such a way that mutually agreeable payment arrangements were sought, including facilitation of settlement of rents and subscription fees by check and Lebanese dollar transfers under existing contracts. In turn, tenants were portrayed by operators as understanding of the need to price contracts with a view to dollarized maintenance costs where imported materials would be involved. Nonetheless, for the overall industry, the pricing of tenancy packages became a major question that providers took time to get right, says Alwan.

Going forward in the near term, the challenges are not fading. It seems highly improbable that co-working spaces in Lebanon will find it easy to fulfill the self-chosen mission as entrepreneurship bastions by providing what has been looking for over a year – and in the past few weeks even scarily more so – like islands of sanity and stability surrounded by a rising tide of scarcities. However, the longer term outlook of co-working in Lebanon might benefit from the ongoing and today far from clear shifts in work cultures that can only continue in an increasingly digitized and globalized world of work and remote work. In the long run, it might all be determined by the ability of local co-working spaces to stick with their chosen missions of supporting community and entrepreneurship in changing digital environments. 

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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