Pros and Cons of Coworking vs Traditional Office Space in NYC

Pros and Cons of Coworking vs Traditional Office Space in NYC

If you are looking to rent commercial office space in New York City, it may be a good idea to consider coworking options as well. This largely depends on the kind of business that you represent. How does coworking space compare to traditional office space? This question is especially relevant now, given the excess commercial office space vacancies that NYC is currently experiencing.

First, let me address a few interesting psychological considerations relating to the two types of spaces. To start, why do you think people choose to rent coworking spaces in the first place? Is it as simple as saving money to avoid committing to a commercial space lease? There are generally two reasons why an individual or a small team may consider a coworking space.

Advantages of coworking spaces for small teams

Signing up for a coworking space would give you a business address. This is very important for a company that expects to receive physical mail or a type of business where customers expect to see an address on their business cards. I’m sure you would agree that using your residential home address for that is a bad idea. A business address belonging to a prominent building in your city will always look better on a business card than a PO box address.

The second advantage of coworking space is that it allows for a psychological separation between home and work. Sometimes it’s true that people can perform serious work while staying at home – and the recent pandemic has undoubtedly put a lot of us through that test, as I’m sure you would agree. However, many people work faster and more effectively when placed in a business environment. It can help them focus, make it easier for them to come up with new creative ideas, as well as avoid time-wasting personal activities – since you’re paying a hefty fee for being in a coworking space.

Finally, a coworking space makes it easy to collaborate with others, such as a business partner or a few employees. It provides a neutral corporate territory where you can meet, discuss ideas and work more efficiently together.

Limitations of coworking spaces

Coworking spaces may not work for everyone. There are many types of businesses that can’t operate in that type of environment. For example, you will likely not start a medical practice business or a law firm within a coworking space wherein you are constantly handling sensitive customer information and where every discussion with a client must remain private.

A coworking space will also give you little to no brand presence in the way of a dedicated reception area with your company logo, staff names on doors, etc. – which may erode the trust of your clients depending on your type of business. That said, there are situations where even a law firm may wish to obtain a coworking space in a different city, for example, to comply with local bar rules in a state where their work is being contracted.

The one quality that all coworking spaces are best known for its flexibility. However, customers end up paying a considerable extra for that flexibility, in terms of price per square foot when it comes to their actual work area, being forced to share amenities like meeting rooms with other coworking customers, higher ambient noise levels that may make it challenging to hold private phone conversations, generally reduced work privacy and significantly reduced brand presence.

Advantages of traditional office space

Leasing commercial office space in New York City will inevitably lock you into a multi-year lease agreement. Still, it will demonstrate commitment to your business, dedication to your employees – as well as the ability to scale the number of employees.  In turn, those clients will be impressed by seeing visually stronger branding, having a guaranty of privacy, easier handling of privileged documents and information, no limitations on meeting room usage, etc. You can also choose to work longer hours if needed and even take an occasional power nap guilt-free, without being judged by people you don’t even know.

Even though Metro Manhattan Office Space exclusively represents tenants in their search for traditional office space here in New York City, it doesn’t make any sense to discourage people from considering a coworking space if it fits their specific needs. The two types of spaces are very different, and choosing between them involves understanding many details, caveats, and limitations that apply to each type and then weighing them against the needs of your business.

Let’s look at a few example scenarios.

You could be a manufacturer’s representative, an independent salesperson, in which case having a physical base of operations – a place to park your briefcase, so to speak – may be convenient. In that case, having a shared space might be perfect.

However, if you have to meet some high-end clients or consider each sale critically important from a financial perspective, you may be better off leasing a demised office. Coworking companies like Regus and WeWork offer the ability to rent exclusive offices as well. So even in that scenario, you may still be able to avoid signing a commercial lease if having that flexibility serves the needs of your business better.

A regular commercial space usually makes more sense if customer trust is crucial to the nature of your business. For example, if you’re involved in finance of any kind, then meeting customers in a coworking facility would be unprofessional at best. Whether you are a private equity firm, a hedge fund, or a wealth management company – you would undoubtedly be better off with private commercial office space to fit the needs and expectations of your clients.

Now, what if you’re a tech company, a marketing or advertising agency, or a public relations firm? If you are starting and you have fewer than five employees, then it’s possible that a coworking space could fill your needs – at least until your company gains more traction in the marketplace. However, you would ultimately want to transition to regular commercial office space as soon as your company can reasonably afford it.

Coworking spaces don’t fit the needs of fast-growing companies

Coworking spaces become very costly once the number of employees increases and overall work efficiency indeed declines. After all – you control very little about your office space in a coworking facility. You can’t create a customized buildout to suit the needs of your business – which is especially important in today’s climate where many landlords are willing to go above and beyond for tenants when it comes to buildouts and offer more months of free rent plus other perks.

At a coworking facility, you will be sharing meeting rooms and other amenities with other coworking members, and you are stuck with whatever shared internet service the coworking facility happens to have, even if it’s too slow or too unreliable for your needs. It may also be difficult to gain privacy for important phone calls, and coworking facilities are far from ideal if you regularly meet prominent clients. Often, co-working facilities are not accessible after hours. So if you have projects with tight deadlines, you may end up working from home anyways.

Many coworking facilities are located in trophy Class A buildings, such as the Chrysler building in Manhattan. While that seems like a great thing, it’s also the reason why these services end up being rather expensive. It may be much more cost-effective for your business to lease a more significant amount of office space in a Class B or a nicer Class C building instead, and you would save even more money if your business doesn’t need to be located on an avenue.

Location, location, location!

With that said, let’s talk about location. Given the comparatively limited number of coworking facilities in any city – the available location options for regular commercial office space are vastly greater. This is especially true because of a very high office space vacancy rate in New York City today.

Another location-related consideration is that many areas of Manhattan often have specific types of businesses clustered together within a small number of blocks. The area around Varick Street was a location for many printing concerns in the past. The wholesale flower industry is in the Chelsea District. If you are native to New York City, you may have heard of the Diamond District on 47th between Fifth and Sixth avenues or the famous Garment District between West 35th and 40th Street.

Depending on your business, renting space close to other companies in your industry may be beneficial. You may gain credibility, source vendors, and potential referral businesses in those parts of Manhattan. Even if you have a competitor as a neighbor, it’s not uncommon for competitors to refer business to other service providers. 

You will have a wider choice of locations if you lease private office space directly from a landlord.  This may make it easier for you and your employees to commute to the office. Still, you could minimize your commute time further by choosing an even more optimal location. The time you’ll save in the process will add up in the long run.

Financial considerations of coworking vs. traditional office space

Many customers of coworking spaces are either trying out a brand new business or aren’t profitable enough then to justify signing a long-term commercial lease (or perhaps they’re struggling to qualify for commercial space). In some of those situations, a coworking space may indeed be more cost-effective. As a regular commercial tenant, you pay a monthly base rent and additional rent charges. The additional rent charges are for tax increases and common area maintenance percentages. You may also have to pay for your cleaning services – which is not true of coworking facilities.

However, the bottom line is that coworking space is significantly more expensive per square foot. The coworking company marks up its rent, additional rent, and wages for employees servicing that space. 

That’s why, as your business grows and the number of your employees increases, the financial formula will eventually shift to make traditional office space more attractive, especially when considering all the other perks that conventional commercial office space in New York City would offer for your business.