The Complete Guide to Coworking Management Agreements

In 2019, there were 19,400 coworking spaces around the world. Three short years later, that number skyrocketed to 30,000 spaces. Now by the end of 2024, there could be as many as 41,000 coworking spaces around the world.

This exponential growth has brought a lot more people to the coworking sector and with that, a lot of change. One of the biggest changes to the coworking model post-pandemic is the introduction of creative, flexible agreements with landlords.

And based on what we’ve heard from our clients, they’re changing the game for coworking operators for the better.

What is a coworking management agreement?

A coworking management agreement – also known as a coworking agreement or coworking contract – is a contract between the owner of a building (the leaseholder) and the coworking space operator.

Here’s how it works:

• The owner of the building is the de facto owner of the coworking space, meaning their name is on the lease, they cover all expenses, and they manage the physical asset.
• The coworking operator is responsible for running the business – building the brand, creating the community, and acquiring new members.
• Revenue is then split between the building owner and the coworking space operator.

Coworking agreements marry the branding expertise of coworking operators with the asset management expertise of commercial property owners.

Because most operators don’t want to worry about buildouts, lease agreements, and managing financial risk – they want to worry about building their community.

Why are flexible coworking contracts becoming more popular?

There are two primary reasons why we are seeing flexible coworking contracts like management agreements increase in popularity.

1. Traditional lease agreements are disadvantageous in the coworking sector

Historically, coworking operators have operated using traditional lease agreements. Here they rent a space for a set period of time and pay rent monthly to their landlord.

As the industry matured, operators and landlords began to realize a few challenges with this arrangement:

1. There’s a high upfront cost: the cost of building out a coworking space can be massive – not to mention the cost to restore it back to its original state once the lease ends. This is sometimes partially covered through a tenant improvement (TI) allowance, though it rarely covers the full amount.
2. Long-term lease agreements can be risky: it’s typical for coworking operators to enter into long-term lease agreements (ie. 5-15 years). This presents a lot of risk if the market or demand changes over time.
3. Operators are inexperienced in asset management: managing a commercial building has a lot of challenges that operators aren’t prepared to deal with. Their expertise often lies in operating a business, not managing a physical asset.
4. Landlords aren’t maximizing their earning potential: simply renting out a space guarantees landlords income each month. However, it doesn’t fully maximize how much they could be earning with their space.

Flexible coworking contracts like management agreements remove these challenges while creating a mutually beneficial agreement for both parties.

This article from Hive Life is a great resource for understanding the challenges with traditional lease agreements and how management agreements aim to solve them.

2. Office space is sitting vacant post-COVID 

Office vacancy rates in the US just broke 20% for the first time in history. How we work has changed forever and property owners are looking for more creative ways to fill their empty offices in response.

Coworking fits the need for flexible office space perfectly. But rather than create their own coworking space, it makes more sense for property owners to partner with existing operators to maximize their earnings and potential for success.

By bringing in an experienced coworking operator to run the coworking business side of things, property owners are able to create a profitable business out of their otherwise vacant spaces.

Coworking management agreements are the perfect solution to both of these problems.

Who are coworking space agreements best for?

Because landlords are taking on a lot of the risk, they typically want experienced coworking operators with a proven track record of success. These are operators with:

• One or more location
• A profitable business
• A recognizable or positively associated brand
• Extensive business experience

Because coworking agreements are ultimately a partnership, the leaseholder wants to know that operators can generate revenue for their business before taking on such risk.

This doesn’t mean you can’t seek out a management agreement if you’re brand new to coworking. Just know that you may find it challenging to find a leaseholder willing to take on the risk of partnering with someone new to the industry.

Possible structures of coworking management agreements

Management agreements are unique to each individual partnership. Therefore, we don’t typically recommend using a management agreement template or lease agreement template as your guide.

Here are three popular coworking management agreement structures we’ve seen based on conversations with our clients to help you get a sense of what a structured deal could look like:

• The building owner covers all expenses and pays the operator 5-10% of revenue each month.
• The building owner pays all expenses and keeps all of the revenue until market-rate rent is met. The operator is then paid 20-50% of revenue each month.
• The building owner covers all expenses and pays the operator a fixed amount each month, similar to as if they were an employee of the business.

In almost every case, the building owner is responsible for covering all of the expenses, and therefore keeps the majority of the revenue. As a result, the earning potential for coworking operators is much less with a coworking agreement than with other types of contracts.

The pros and cons of coworking management contracts for operators 

Much like the coworking franchise model, coworking lease agreements come with their own pros and cons. The table below summarizes the benefits and potential downsides of entering into a management agreement for coworking operators.

The biggest potential downside to entering into a management agreement (and it is a big one) is you do not truly “own” the business. You cannot sell the business, you have less control over the building, and your revenue potential is lower overall.

However, you accept far less risk and have to contribute significantly less up-front capital with a management agreement, making it a good option for some seasoned pros looking to expand efficiently.

If you’re expanding your current operations and you’re looking for a strategic partner with connections in the commercial real estate industry, then a management agreement may be a good fit for you.

Coworking management agreement best practices

We asked a few of our most knowledgeable clients, what are your best tips for creating a successful coworking management agreement? Here’s what they said. 

1. Treat it like a partnership

At the end of the day, a coworking management agreement is a partnership. Both parties have much to lose and much to gain from working with one another, and that needs to be respected.

This means listening to the concerns of the other person, making strategic business decisions with input from the other, and acting in ways that will benefit both parties.

In our We Run Flex conversation with Tanis Jorge, Founder of the Co-founder’s Handbook, she explained that value alignment is the most important thing to a successful partnership. Think about that when looking for a partner to go into business with.

2. Be clear on each other’s roles and responsibilities

Entering into an agreement with a property owner will require some clear R&Rs. A good lawyer can help you map out:

• How and when each party will get paid
• What will happen if things end
• Who owns the rights to what
• Who does what and when

The final point is one of the most important of the bunch. Having a deep understanding of each other’s roles and responsibilities before singing the contract avoids unnecessary conflict and confusion down the road.

3. Maintain control of your brand

The value that operators bring to a coworking management agreement really lies in the brand. A solid piece of advice that we’ve heard is to maintain full control over the brand you’re creating. 

That includes the name, colors, fonts, and all marketing materials that are created. No one else should be able to take your assets and replicate your brand if and when the management agreement is up.

4. Do your research

A simple, but important step in the process. Make sure you understand:

• The person you’re partnering with: who are they, what are they like to work with, are they someone you could enjoy doing business with
• The building they own: how big is it, how much does it cost, what is its monthly rent
• The neighborhood it’s located in: what is the neighborhood demographic like, what is around it

Nothing should be a surprise in the coworking management agreement process. 

5. Equip yourself with the knowledge to add value

It’s easy to feel like you don’t have much value to add, especially as a coworking operator in an unfamiliar industry like property management. 

Empower yourself with the knowledge you need in order to add value to the partnership. Continue to grow, deepen your skills, and enhance your knowledge of the industry in order to be successful.

The future of coworking (contracts) is flexible 

As the coworking industry matures, the way that space operators rent their space is changing – in favor of the operator.

There’s more flexibility now than ever before when it comes to managing your space. So before you sign on the dotted line, do your research to find a partnership that is going to work best for you and your business.