Secrets of Growth

For rent: A desk, WiFi, and instant coworkers

October 28, 2011: 8:00 AM ET

One consequence of the sluggish economy has been the rise of flexible workspaces. But will coworking fade when the jobs come back?

By Elaine Pofeldt, contributor

pariSoma Innovation Loft

pariSoma Innovation Loft

FORTUNE -- After years of helping other photographers with everything from equipment loans to job leads, Benjamin Weatherston, a veteran photographer, decided to turn his passion for mentoring into a business.

He and his wife, Jen, leased a 51,000-square-foot space in an industrial park in Ann Arbor, Mich. and in March opened the Photo Studio Group, a shared workspace for serious photographers. It offers them areas for shoots, use of photographic equipment and amenities such as a lounge and full-kitchen. Members pay anywhere from $50 a month to $300 a month, depending on how much studio time they need and the time of day they want to shoot. With 15 members already, Weatherston hopes to generate enough business to start breaking even next year.

"It's a very creative town," he says.

Weatherston isn't alone in spying an opportunity to cater to freelancers and small companies seeking inexpensive but professional workspaces–and a sense of community that working from home doesn't typically offer. Deskmag, a publication focused on the "coworking" trend, found that the number of such spaces worldwide increased by 17% from February to May, to 820. North America now has 380 co-working spaces offering desks, seating and internet access, with most in the U.S., according to its report. But with definitions of coworking spaces varying considerably, the numbers are likely far greater. The flexible workspace provider Regus alone has 1,200 locations worldwide.

With the trend heating up, owners of shared workspaces convened for the Coworking Unconference in March in Austin, Texas, an outgrowth of similar conferences in Europe that was timed to coincide with the SXSW music, film and interactive festival. Up for discussion were topics like "Who will be our customer in 3 years?"

It's a good question. Though many involved in coworking celebrate the freedom and communal vibe these spaces embrace, it can be hard to run them profitably. "There are a lot of people who have opened and failed, or who may fail," says Paul V. Carter, senior vice president at OfficeLinks, a provider of flexible office space with four locations in New York City and one in Chicago. Catering to clients such as international companies and hedge funds, it projects about $10 million in sales for 2011.

One challenge for coworking spaces is finding the right business model. It's often easier for shared workspaces to cover their overhead if they focus on attracting businesses that pay recurring monthly fees than if they build their offerings around the needs of freelancers who are occasional drop-ins, says Carter.

In an increasingly crowded marketplace, it's also essential for coworking spaces to distinguish themselves from their competitors, which may include traditional business center providers and incubators. Even 22-year-old Regus– a granddaddy of the flexible workspace industry known for catering to companies that want to open an office inexpensively in a new city or to save on back office costs locally–is courting the entrepreneurial crowd. "Today, the smallest startup can start with us in an open space environment," says Guillermo Rotman, CEO¬†Americas¬†for the Luxembourg-based company, which has 1,200 locations around the globe. For costs averaging $50 a month, U.S. clients can get access to all of Regus's business lounges, and their secure WiFi connections, in a given city, for instance. There's even an intranet where folks like web designers can advertise their services.

Then again, newer coworking spaces can offer a one-of-a-kind, quirky vibe that's hard to replicate in a larger company. Take pariSoma Innovation Loft, a 10,000- square foot space in San Francisco's SoMa district owned by the Paris-based tech company faberNovel. Since opening in March, it is already generating $40,000 a month in revenues from 120 members, including 50 small companies, says Julian Nachtigal, COO of faberNovel and the "Chief Coworking Guru" at pariSoma. Members get to work on tables fashioned from ping pong tables and attend events like TEDxSoMa, an event inspired by the TED conference, and classes on topics ranging from the open-source web application framework Ruby on Rails to home-brewing ginger beer. Desks in a shared space go for $275 a month, while private ones cost $500 a month. "It's really fun," says Nachtigal.

Of course, no one knows how long the party will continue for coworking spaces. The trend has been fueled, in part, by an economy where corporate jobs for the young are scarce. A survey of coworking spaces by Emergent Research in 2010 found that their desks and sofas are mostly filled by well-educated male techies who are under 40, with 55% working for small companies and 44% of them freelancers or sole proprietors.

"My question is what happens when the economy comes back?" asks Carter. "Do members of Generation Y and Millenials really want to be independent contractors when Google offers them a permanent position? How much do they like this lifestyle? I suspect it's not as much as people think."

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