Coworking CEO: optimisation is the key to success
Natasha Guerra, CEO of Runway East, talks pros and cons of operating in London, and the importance of optimisation.
Starting Runway East back in 2014 and providing workspaces to tech startups and high growth businesses in London and Bristol, their mission is to be the backbone to the UK’s tech ecosystem.
How do you see the future for flexible offices market in London? Are you looking to expand past this?
We currently have 3 sites in London and one in Bristol, but we’re looking to expand across the whole UK, and offer space for high growth companies not just in London and Bristol, but in all major regional hubs.
For us specifically, Bristol has a smaller pool of startups and potential customers, so there’s only so much we could actually grow there. London’s an easier place to grow a lot bigger because there’s essentially endless amounts of startups here that are looking for space.
At the same time, London provides more options for customers to choose from. Which means that prices are more competitive.
On the contrary in Bristol, we don’t have that much competition, and because there’s less of a price squeeze than in London we find it much easier to add more real value to startups there.
What the biggest misconception people make about the coworking market?
I think a lot of people have entered the market thinking its a completely simple business, and I slightly made this mistake when I first started, but it's actually way more challenging than it looks to run a successful and profitable space. It starts off with really good financial fundamentals, but also uncovers a need for good customer service, high retention and good customer acquisition strategies.
If you get the layout of a space wrong, and you don't fit enough desks in, and you've taken that space for 10 years, it's going to be very tough to make a profit. I think there's a lot of people that have taken on spaces and not really thought through the financial fundamentals of it.
I think the most common misconception is that people think you can just take on a building, fit it out and call it an operational coworking space.
Optimisation is so important and its often overlooked. Because you have really really high fixed costs, and if you predict those against the predictions of your income just slightly wrong, you can go from having great returns to being in hot water very quickly. Because there's nothing that you can do to remove those fixed costs - they're rents, rates and service charge, and you've committed to them for a long period of time.
This industry wasn’t really popular until it exploded around 10 years ago. What do you believe to be the factor that contributed the most significantly towards this?
I think there’s quite a lot of things. First off, landlords didn’t really catch up to how people saw the market changing and the changing nature of how people work and live - which became a lot more joined and intertwined.
Coworking perhaps blew up in the beginning because there was quite a large arbitrage opportunity for people who could lease space flexibly and get really good returns on it purely because no one else was offering that option. Now I think it’s just become, especially in the sub-5000 sq ft market, quite counterproductive to get a fixed traditional lease and go through all the legal paperwork and worry about your own maintenance - it just wouldn't make sense in this market for small businesses.
Do you feel as though the sub-sector has the strength to survive the downturn?
I definitely feel as though the sector isn’t going anywhere anytime soon. I think the coworking market is moving in a very similar direction to the hotel market in the sense that, it’ll become its own asset class because this is simply just how people work these days and it’s not something that’s just going to go away.
Having said that, I think there are a lot of companies out there that have taken very risky bets on property deals and taken stuff at the top of the market, and not really thought about or anticipated a downturn, in which they’ll need to hold a very, very high occupancy rate just to break even in.
It’s just a natural progression of the market. I’m sure as it unfolds, we’ll start to see consolidation happen and larger players taking over smaller players. At the moment the market is extremely fragmented, even now I think WeWork only holds about 4% of the total market so, the vast majority of coworking providers only hold one or two sites. When the downturn comes around, I think we’ll see a growth in the big providers as they take over the smaller providers.
For more information on both traditional and flexible offices and the wider European market, GRI Offices takes place on 19-20 November in London and Europe GRI takes place on 11-12 September in Paris.
Article by Matt Harris