Can Franchising Support The Future Of Flexible Workspace?

For workspace operators and entrepreneurs looking to tap the growing demand for flexible space, a franchise partnership provides opportunities to accelerate growth within a nationally recognized brand.

The past two years have been challenging for flexible workspace operators.

For an industry that prides itself on nurturing human connections, building local communities and fostering business relationships, the effects of the pandemic were particularly cruel. Social distancing and stay-at-home orders put many much-loved coworking communities out of business.

Moving forward however, there is fresh optimism.

Coworking is bouncing back and the future of flexible space is getting stronger with each passing month. Indeed, many business owners now realize that in times of uncertainty, flexibility is the greatest amenity.

According to recent research, 41% of workspace users expect to increase their use of flex space as part of a post-pandemic work strategy. And with the pandemic exacerbating uncertainty, “flexible space adoption is set to accelerate substantially as demand shifts from fixed long-term commitments to more agile options” (JLL, November 2021 Global Flex Space Report).

Yet while flexible space is emerging from the pandemic in a strong position, there are still significant challenges ahead – particularly for vulnerable operators.

‘Vulnerable’ doesn’t necessarily mean small. It can also include brands who don’t have sufficient financial backing, who don’t benefit from a favorable lease or management agreement, and who don’t have appropriate revenue diversity – after all, workspaces that relied almost solely on membership sales were hit particularly hard during the pandemic.

One report found that “vulnerable operator models and drastic membership reduction” resulted in the permanent closure of over 700 coworking locations in the top 30 North American cities between March 2020 – May 2021. Interestingly, a number of these closures came from large workspace brands.

Many of these locations lacked brand recognition and/or local management to think creatively on how to build their brand during rapidly changing and challenging times.

The biggest lesson that the pandemic taught our industry is the importance of balance.  

Incorporating a nationally recognized brand with local management and ownership provides great value for members and retains the local feel that each community craves.

But how can you secure that balance?

One route is to seek partnerships. These can take many forms, ranging from landlord partnerships to collaborations with service providers and local businesses. Franchising is one particular type of partnership that has grown rapidly in recent years, and is becoming increasingly popular within the flexible workspace sector.

How does it work?

Take Venture X as an example. Workspace operators, or entrepreneurs looking to start a coworking space for the first time, can become a franchisee with Venture X and lean on its substantial infrastructure to help smooth out operational roadblocks and avoid unexpected costs.

This way, operators are able to tap an existing brand network (currently almost 50 locations open in 7 countries, and over additional 100 agreements in place to open in the near future) and take advantage of Venture X’s economy of scale.

It’s similar to hotel franchising, which is also rapidly gaining traction in the hospitality industry. According to JLL, in 2010, approximately 70% of branded hotels were franchised operations. By 2019, that figure had risen to around 80%.

Indeed, brands like Marriott and Hilton have largely “moved away from owning the real estate portion of properties and toward a model where they grow in scale through franchise agreements”.

“The growth of the franchise model is facilitated by the fact that Wall Street rewards parent hotel companies that have a more asset-light strategy, as they typically boast strong balance sheets since they have less leverage. These companies no longer need to take on debt to buy hotels, which is rewarded with higher stock prices.” – Geraldine Guichardo, Global Head of Research, Hotels & Hospitality Group, JLL.

The flexible workspace and hotel sectors are closely aligned. Given that hotels and workspaces both rely heavily on commercial real estate, it’s easy to see the attraction in shifting away from real estate debt.

Of course, like any business, becoming a franchisee requires investment. Entrepreneurs will be expected to contribute an initial franchise fee and royalties, along with investment to cover initial expenses such as remodeling, furniture, rent deposit, insurance, and so on.

In return franchisees benefit from a proven model, a recognized brand, and the backing of a parent organization that provides close support, training, marketing resources, and more. In short, franchisees are given the tools and infrastructure they need to grow within a branded framework.

Can franchising support the future of coworking?

Remote and hybrid work will be a large part of the future of work, but entrepreneurs and teams still need a business community. They need places to meet, collaborate, and work productively. They also want flexibility, and with 30 percent of the office market projected to be flexible by 2030, the flexible space market is once again poised for growth.

Just like hotels, the flex space industry is rich with different types and styles of workspace. And just like hotels, franchise partnerships can provide growth opportunities with flexibility at its heart.

Written by Michael White, President of Venture X. If you’re interested in owning or converting your space to a Venture X, visit the website today to learn more.