Yes, the Pandemic Could Ultimately Save the Coworking Industry

Dropbox, WeWork, and Google all think they have the playbook for the part-time office

An illustration of workers having a meeting in a conference room.
An illustration of workers having a meeting in a conference room.

Aside from religion and politics, it’s hard to think of another topic in recent memory that has provoked more fierce debate than the concept of remote work. For years, “future of work” enthusiasts would quibble over how some people are more productive by cutting out commutes and working in a pajama-friendly home office, while others prefer the camaraderie and water-cooler small talk that only a bustling office could provide. Lurking beneath these discussions around worker productivity and engagement was perhaps a bigger underlying issue: the potential dismantling of one of corporate America’s longstanding cultural mainstays—the IRL office. Now, with vaccines in sight, companies are being forced to decide what shape their post-Covid office will take.

Last fall, Dropbox drew its line in the sand when it announced that it would indefinitely become “virtual first,” ushering in the next iteration of the brick-and-mortar office economy. To be clear, Dropbox isn’t abandoning in-person work or switching to a pure work-from-home model. Instead, it’s shifting the default from the office to remote, while setting up Dropbox Studios, where employees can collaborate and hold in-person meetings. Unlike traditional hybrid-remote office models where employees can choose whether or not to go into the office, Dropbox has made it clear that Dropbox Studios is not intended for individual work or hot desking. Its offices will be reserved explicitly for team building and community gatherings. In other words, something more akin to a rented hotel banquet hall — but is theirs 24/7.

It’s not surprising that with so many white-collar workers relocating during the pandemic, companies are trying to negotiate this type of in-between solution. Since the start of the pandemic 124,131 San Francisco residents filed a change-of-address request, often fleeing for more affordable places like Austin, Miami, and Denver. Manhattan offices available for rent are at their highest levels since 2003, according to a report by Colliers International. As a result, companies like San Francisco–based Dropbox are looking to reap the financial benefits that come with the ongoing exodus from coastal cities and salvage what made them work in the first place.

Enter the inevitable return of our almost-retro 2019 obsession: the on-demand, flexible co-working space.

Now, with so many workers with tricked-out WFH setups in more affordable parts of the country, it’s worth asking what the future of work looks like if the office is a possible part of the equation but not a mandatory one. One scenario is that companies will split even further on their stance on the role of the IRL office: Some may rush back to the status quo as soon as humanly possible. (When the Wall Street Journal asked Netflix’s Reed Hastings when he’d expect the company to return to the office, he answered, “Twelve hours after a vaccine is approved.”) Other companies, like Shopify, Twitter, and Slack, will decide that remaining fully remote suits them just fine.

But for many, the verdict will land somewhere in the middle: The office was overrated, but it wasn’t a disaster — worth something, just not the estimated $2.5 trillion of U.S. office real estate it currently takes up. Remote work is viable, but it’s not perfect — and in most cases, it’s far more productive to just get everyone in one room to hash out a problem, especially for early stage companies. Google recently announced that it would delay its reopening to September 2021 and asked its employees to come into the office three times a week.

Enter the inevitable return of our almost-retro 2019 obsession: the on-demand, flexible co-working space. Ironically, Covid-19 initially looked like a death blow for the embattled co-working industry. How could a business built on cramming people into tiny glass offices survive when everyone needed six feet of space on each side?

WeWork’s business model had already faced serious questions before its dramatic implosion. Back in the heady days of fall 2019, the tech world was consumed with arguments over WeWork: Is it a startup or a scam? Does it showcase tech industry hubris or New York hustle? Is it revolutionizing real estate or just selling it?

Employers will have to consider a new version of office politics and corporate angling: how a hybrid-remote model could introduce an imbalanced power dynamic for employees who choose to return to the office versus those who may opt to continue working from home.

One of the more cogent arguments playing in WeWork’s favor (before its failed IPO) was that it was AWS, or cloud computing, but for space: That is, if companies had unpredictable demands for real estate, in both quantity and kind, WeWork was their solution. In that vision, WeWork was there for the overflow — for companies that could staff up faster than they could lease new space; for those that needed space for a quarterly all-hands, but only once a quarter; or for companies that needed to co-locate some employees in a single city for a month, but not the full year.

WeWork’s expansion was expensive and pervasive — at its peak, it was opening two locations a day, according to the book Billion Dollar Loser, often overpaying handily for the privilege. It was a liability, but with the pandemic-induced migration out of big cities, co-working spaces will once again have a large potential audience: the people who need an office, but not 100% of the time. There are those remote workers who are no longer living in the same cities where their company is based, and there are companies that have unexpectedly given up their traditional workspace and find themselves with a nationally distributed workforce.

Now the bruised co-working giants are battling it out. WeWork and IWG (formerly Regus, another co-working network), both have co-working space nationally, which makes them the natural partners for larger companies. At WeWork’s peak, short-term leases meant months instead of commercial real estate’s traditional five to 10 years. Now, through WeWork’s on-demand app, customers can book office space by the day for $29 or private conference rooms starting at $10 per hour. Meanwhile, Regus, which has put many of its locations into bankruptcy, is extending its leases for others in a bet that demand for office space rentals will soon return. Others are restructuring their locations to include more private offices and fewer shared spaces or moving community events online to keep tenants’ social ties strong.

Once companies commit to the hybrid-remote model, though, they’ll have to examine what it really means in practice. For example, employers will have to consider a new version of office politics and corporate angling: how a hybrid-remote model could introduce an imbalanced power dynamic for employees who choose to return to the office versus those who may opt to continue working from home. What will be the unintended blowback for employees who decide to come into the office only every other month versus those who make a point of being physically present every day?

Ultimately, what companies may find is that the value of meeting spaces is high, but only occasionally, and the value of serendipitous encounters is nearly always underrated. As Bell Labs’ Richard Hamming once put it, “He who works with the door open gets all kinds of interruptions, but he also occasionally gets clues as to what the world is and what might be important.” Dropbox has built a suite of products that let people work with their files from anywhere, and WeWork built a business that lets people work from an office for any length of time. As it turns out, an office leasing business built for the overheated funding market of the late 2010s is exactly what’s needed for the pandemic-warped needs of 2021.

I write about technology (more logos than techne) and economics. Newsletter: https://diff.substack.com/

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