Coworking or renting? A quick look at the maths

by Paul Docherty (co-founder of The Microbusiness Collective)

Coworking is a rising trend that has been badly affected by the global health pandemic, but now that we feel we’re coming slowly out of lockdown, could it surge once again? I think so, so I thought I should take a very quick look at coworking versus renting from a purely financial point of view and for my own single-person business situation. Coworking is a subject I learned quite a bit about several years ago. The idea for The Microbusiness Collective came about as a result of collaboration in a coworking space run by my co-founder Tom McCrorie. When I first looked around for an office I saw a problem with cost, and coworking versus renting turned out to be a no-brainer for me. Let’s look again though.

For me, my experience of coworking came about as a result of looking for a place to work that allowed me to leave the house each day and ‘go to work’: something I knew would help my productivity and mental health at the time.

Several years ago, I started looking for an office to rent, with the idea that I might persuade one of my freelancer friends to share it with me and split the costs. Although there were quite a few options around, the maths quickly didn’t add up for my business. The cheapest space I could find was just over £300 per month to rent (sounds cheap eh?), but that was before I added rates, utilities, VAT and broadband charges.

It also occurred to me that a great many tenancy contracts come with what amount to punitive rental agreement terms that would make me liable for buildings insurance and repairs to whatever premises I rented. This is an open-ended risk that no microbusiness should consider taking on. When I spoke to the agents and made it clear that the landlord would be responsible for repairs and insurance of any building I agreed to rent (not contents, I’m not that mean), every single one of them openly mocked my stance. ‘That’s just not how it’s done’, one rather condescending agent pointed out.

That was the last straw. Dedicated accommodation for my one-person business wasn’t going to happen. A mental calculation made me quickly change my mind about finding an office of my own. With a basic rent of £300-400 per month, I would need to allow for additional costs. This is where I wet my finger a bit and estimated, but I’m not that far out.

  • £50 per month for electricity and heating (quite likely more)
  • £50 per month for broadband and line rental – double that if I wanted the fastest line available.
  • 20% VAT (and since I’m not VAT registered, I don’t get that back every month)
  • Buildings insurance
  • Contents insurance
  • Repairs and maintenance

Add to this, running the gauntlet of qualifying for small business rates relief.

Even before considering the impact of any business rates, it’s likely I would have to find a minimum of £500-600 every month, just to keep the lights on. I don’t know about you, but I can still recall painful months when I didn’t manage to invoice £500. Even with a freelancing friend to share the costs, I would need to be sure I could meet that amount every month on my own as the lead tenant – it’s the sensible approach to take.

For some freelancers and business owners, that doesn’t sound like a lot of money. In some sectors, the day rate means you can earn that in your first working day each month. Sadly not in my main sector though. The coworking versus renting equation had been proved. My choice was to work from home or find another company willing to rent me a space. Luckily at the time, my search ended when I found a great coworking space in Prestwick, where I worked alongside a great bunch of people. The maths showed that for a one-person microbusiness, renting property makes no sense unless you generate enough income to be careless about what you pay out.

Coworking will come back as a viable option when the pandemic restrictions fully relax. Coworking versus renting is a question many freelancers struggle with but the numbers make it clear. If you can rent a coworking desk for between £200 and £400 per month depending upon your location, renting an office makes no sense unless you absolutely have to have a dedicated place to bring clients and trade from. Most well-designed coworking spaces will also offer communal meeting facilities, making this point partly moot too. For the average microbusiness owner or freelancer working on their own, coworking instead of renting is likely to save a minimum of 50-60% of the cost of having your own place. A saving that can’t be ignored.

If, however, you need space for multiple people, the maths balances out differently. It’s a much closer call but still one that should be considered before you make any decisions around a commercial rental contract, especially one that transfers the costs and risks of building maintenance and insurance to you.

So, what happened to Tom’s coworking space? Well – that’s a story for another day. We miss you Sharespace!