Can coworking survive COVID-19?

As Austin braced a coronavirus lockout last week, Scott Harmon learned of the latest tenant to flee. A 30-person startup packed up their leased office, entering a sea of coworking spaces deserters and other "flexible" offices — a diverse slice of the commercial real estate industry that has boomed in recent years. Only a few months ago, Austin offices rented out a square foot for a high average of $44. Behemoths like Facebook, Google and Apple have been eating up more room in the city of central Texas. With its mid-March festival, SXSW was expected to carry the tech masses to town once again. Yet, once-cutthroat office markets have hit a brick wall in Austin and other tech hubs. And the stakes of the COVID-19 crisis are particularly pressing for coworking companies and Airbnb-for-office-space companies that operate on thin margins, industry executives claim. Leasing has come to a halt as entire states shelter—"nuclear winter, "as one industry publication put it.

Tenants are wondering whether they should postpone the payment of rent, leave the landlords struggling to finance their own mortgages, and stay away from cash-hungry banks. Coworking operators and similar Swivel-like real estate tech firms fear demand will slow, rents will decline, and many will decline. Only months after another financial shock — WeWork's near-implosion — took the coworking market to the verge, the virus' aftermath is shaking up the real estate industry. Just before coronavirus crippled the economy, some investors experienced as a high-growth start-up company on the concept of commercial real estate.

Today, those on the ground are obsessed with how the government should intervene to stave off potential evictions and foreclosures, concerns that have taken a back seat in controversy over a federal stimulus of $2 trillion to date.

The longevity of the competitive office market will rely only in part on the ability of businesses to manage what many analysts expect would be a severe recession. Bigger questions need to be addressed on how people return to the workplace after extended remote work periods. Industry executives say crowded open offices will give way to a combination of in-person and remote services, and declining demand will produce lower monthly rents — for survivors.

There is a wide variety of types of unconventional offices available for startups and tech tenants today, from scrappy community coworking spaces to packages from aggregators like LiquidSpace, whose portfolios of workspaces are cost-effective by day, month or year. All-in-one companies such as WeWork rent out and operate shared and private offices.

As COVID-19 has crippled major U.S. cities in recent weeks, some workspace operators have opted to remain open, especially WeWork, which said it was a "critical" business as it provided services such as mail and security. This week the New York Times revealed the company offered $100-a-day incentives to employees eager to go to work in person. Across the globe, Gilbreath said, new co-working industry associations such as the Global Workspace Association are pooling information about how office providers that wish to remain open can comply with federal cleaning and social distance guidelines. His team is also working to add changes to the listings on LiquidSpace to create closures.

Gilbreath anticipates that a return to normalcy would take place in stages: from sheltering in place to a "semi-normal" period of increased emphasis on workplace hygiene and sanitation, and then accepting a new natural after workers had to "violently agree that homework is now the job."

A longer-term move towards combining remote and in-person work could force corporate clients to rethink the amount of office space they are purchasing or leasing, he said, while layoffs would also lead to lower space demand in the near future. Until financial markets tanked in recent weeks, the move to busy, frequently crowded open offices was already being challenged by employers and staff. Brokerages in-tech hubs propose allocating as little as 36 square feet per workstation in an open office — less than the required minimum of 50 square feet for storage closets.

In Austin, Harmon expects a shift to more private and spacious offices to be a lasting impact of the pandemic. "The large communal shared space thing is going to have trouble reestablishing," he said. "I think people are gonna be freaked out."

Companies may also press for shorter leases in certain difficult periods, he said, which could clash with mortgage agreements for landlords. Established in 2016, Swivel has 15 employees and raised an $8 million Series A round in January that Harmon says would help offset the "dramatic" sales loss he expects.