Scale, services key to success in African co-working sector

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Co-working as an industry is relatively new, but one that is crucial to the African tech startup sector. Spaces are becoming more commonplace, but making a success of them is not as easy as it looks.

Infrastructural costs are often high, startup budgets are always small, and therefore margins are pretty narrow, meaning reaching scale is key for building profitable businesses. Scaling has been a priority for Nairobi Garage, which describes itself as Africa’s largest co-working company and last week announced the opening of its third space in the Kenyan capital.

“A key for us has been focusing a lot on expanding our locations, while making an effort to maintain the level of flexibility and customer service that people know us for. I think what people really value is the accessibility in terms of locations around Nairobi, and the size and quality of the network that one can tap in to,” director Hannah Clifford told Disrupt Africa.

According to Clifford, there is a trade-off between a more boutique and personalised service that you can offer at a smaller scale, and the profits to be made at scale.  

“I do think there is a limit to how much people are willing to pay in the African content, even for a very high-end product, so from that perspective, very small spaces don’t really work so well,” she said.

Scale + services

This is a view that is shared, with another major African co-working provider, South Africa’s Workshop17, in the process of scaling across the country. However, co-founder Paul Keursten says there is more to making it big in this space than simply, well, making it big. For him, Workshop17’s spaces are just the physical and tangible part of its offering.

“The real value lies in the community and the activation. We have a growing community of 1,000 members in our spaces, who can connect with each other. Whenever a member has a need, chances are someone in our communities can help. Members also create access to opportunities for each other as well as join forces. Our community managers facilitate this process,” he said.

“A unique point of Workshop17 is also the network of partners we have build over the years. They offer programmes, events, networks and learning opportunities that are accessible to our members.”

Clifford agrees on the importance of offering key services on top of just physical space.

“I think to really provide value to companies and therefore earn their loyalty, it is important to be more than just a shared, service office space. What those support services are, though, depends a lot on who you’re targeting and what they’re prepared to pay for as additional services,” she said.

Olufunbi Falayi, who runs the Lagos-based LeadSpace, launched in 2016, says co-working spaces can play a vital role in the development of the African tech startup space.

“A lot of these businesses need opportunities for growth and access. We deliberately offer them these values by partnering with relevant stakeholders and creating tailor-made opportunities for our members,” he said.

“Providing support services will be part of the key ingredients in keeping customers long-term. Doing business in Africa is already hard and business owners just want to focus the limited time they have on their core business. Workspaces must recognise this fact and provide relevant services.”

A saturated market?

Co-working spaces are increasingly common, so is the market approaching saturation? Not according to incumbents, at least. Clifford says businesses are still underserved in most African cities when it comes to flexible real estate options.

“There are certain cities, like Cape Town, Johannesburg, Lagos and Nairobi, where there has been a definite boom in the number of co-working spaces, but I also think that there are still a lot of local businesses that are yet to fully realise the huge benefits of taking up flexible, serviced spaces, as opposed to traditional leases, or shared workspaces, as opposed to working from home,” she said.

“That change in mindset is happening, along with a rise in the number of modern businesses whose natural place is a co-working space, so I think there is still a lot of room for growth in the sector.”

Given that, co-working is a highly investable sector.

“I think if your interests are in real estate sector, but you want to get involved in something a little more dynamic, it is definitely something to look at. I also think for developers and landlords, there is a lot of opportunity to partner with a co-working space operator, to bring life to their building and fill up empty space,” Clifford said.

Falayi agrees, saying return on investment is assured if a workspace is flexible enough and attractive enough to attract high growth and international businesses for the long-term. Keursten, however, sounds a note of caution.

“It is not an easy business to be in. It might look simple on the surface, but it is hard work, it is capital intensive, it is long-term and requires very hands-on operational and sales efforts every day. We do fear that some operators take this business too lightly. It is very easy to get burned,” he said.

Though he expects some oversupply in the coming years, he said there will also be growth in demand. The future is bright.

“We are just at the beginning of the growth curve. Looking at Europe and the US, growth in co-working is between 20 per cent and 25 per cent per year. We have just scratched the surface.”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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