6 Key Steps To Prepare Your Coworking Space For Sale

In today’s bustling real estate market, coworking spaces are booming. As the demand for remote work and flexible office solutions continue to soar, coworking businesses have emerged as lucrative investments.

If you’re considering selling your coworking space, you’re in a prime position to capitalize on this growing demand.

However, preparing your coworking space for sale is not simply about listing it on the market and finding a buyer – It’s about maximizing its value and potential for profitability in a competitive market to attract the right buyer.

Think of this preparation process as if you were directing a grand theatrical production. Imagine your space as the most anticipated show of the year, and you, as the director, are ensuring everything is perfect for opening night.

Similar to staging a play, where meticulous preparation моand flawless execution are crucial, and every aspect from lighting to costumes contributes to the final product, optimizing your space ensures it stands out and attracts the right audience of potential buyers.

A pro tip is to actually start thinking about the selling process right from the very beginning. Having a sale-focused mindset when you first start your business and maintaining it throughout your time there, will put you ahead in the long run.

Rather than having to tackle all of these projects while you’re in the middle of an already stressful sales process, stay on top of them and make them priorities within your operation.

Pre-selling is also extremely beneficial, but selling something that doesn’t quite exist yet can be difficult.

Now, let’s jump into the details.

Quick Summary

• Understand the current landscape of the coworking industry and identify who your target buyers are as well as what they are looking for
• Prepare your financial records and legal documents ahead of time to ensure a smoother process
• Implement an organizational process to optimize operations before, during, and after the sale
• Spend time sprucing up your space to make it visually appealing more marketable
• Maximize your exposure to ensure you’re attracting the right buyers

Setting the Stage: Understanding the Market

Just as a director seeks to understand the nuances of the characters, plot, and audience, you, as a coworking business owner, must dive deep into the dynamics of the industry and conduct a comprehensive market analysis.

Market Analysis

The first step in preparing your coworking space for sale is to understand the market. This is non-negotiable if you really want to set your organization up for success.

You must have a grasp on these three pivotal factors:

• Who the key players are and how they’re positioning themselves
• What is driving demand
• How trends and economic factors are influencing the industry

Understanding the market involves gaining insights into demographics, economic conditions, and competitor landscape, as well as familiarizing yourself with the overall industry trajectory.

10 Factors That Define the Valuation Price

Determining the value of your coworking space requires a nuanced approach. To really understand your worth and how you compare to other coworking businesses on the market, take a deep dive into the below factors.

1. Location and proximity to business hubs – spaces closer to central business districts, transport hubs, and high-traffic areas generally have higher valuations. In addition, the demand for coworking spaces in the area and the local economic conditions play a significant role.
2. Physical space – the total square footage, number of private offices, open workspaces, meeting rooms, and communal areas all influence the valuation price. The quality of the build, interior design, and overall ambiance are also important.
3. Occupancy rates – here the factors that play are current occupancy and historical data. Higher occupancy rates can indicate strong demand and stable revenue. Past occupancy trends can help predict future performance. Important terms to grasp here are coworking occupancy index and coworking revenue occupancy index (CROI).
4. Revenue streams – you need to have a clear data and understanding of your membership fees – regular income from individual and corporate memberships as well as income from additional services such as events, food and beverage sales, virtual office services, and other amenities.
5. Operating expenses – what’s usually included here is rent and utilities – costs for leasing the space and utility bills. Staffing and maintenance costs are also included – salaries of staff and and costs of maintaining the space. How about costs related to marketing and administration? Things to consider here are expenses for advertising, managing memberships, and other administrative costs.
6. Market position – the most important factors that influence the selling price here are brand strength and competitive landscape. The more recognizeable your brand is the higher price it can sell for. Plus, the number and quality of competing coworking spaces in the area indirectly impacts the final price.
7. Member retention and growth trajectory – higher retention rates indicate satisfied members and stable revenue which could be attractive to potential buyers. And consistent growth in membership can enhance future revenue projections.
8. Technological infrastructure – the question to ask yourself as an owner here is what’s the current technical state of your coworking space. Do you have a quality and reliable IT infrastructure and do you use advanced technical solutions such as access control systems, for example, that further increase the appeal of your space?
9. Lease terms – data about your lease rate, lease duration, and sublease potential would be of big interest in potential buyers. Longer leases with favorable terms can increase stability and reduce risk. The ability to sublease can provide additional revenue streams
10. Community and network – in today’s competitive flex space landscape, community and hospitality play a pivotal role in defining a coworking space as successful. A vibrant and engaged member community can enhance the appeal of your space and collaboration with local businesses and regular events can add additional value.

Here’s what industry expert Craig Baute from DenSwap has to say about coworking space price valuation:

The valuation of a coworking space is focused on current profitability, realistic potential revenue, and the lease length or options to renew at set terms. Most profitable coworking spaces are valued 2.5 to 4x profits. Unprofitable spaces trade at a 1.5 to 3x what we call ‘optimized profits.’

Valuation Methods (Plus an Example)

When it comes to valuation there are three common methods.

#1 Income Approach

This approach uses the capitalization rate (cap rate) to value the property based on its income. It’s usually in percentages.

The discounted cash flow (DCF) projects future cash flows and discounts them back to present value.

#2 Market Approach

This approach uses a metric called comparable sales to compare the coworking space to similar properties that have recently sold. Learn more about comparables sales here.

#3 Cost Approach

The main metric that plays here is the replacement cost. It estimates the cost to replace the coworking space with a similar one in terms of quality and functionality.

Learn more about the cost approach here.

Now, let’s do an example calculation using the cap rate.

For that, we need to know some formulas such as:

Note that the Current Market Value is the present-day value of the property as per the prevailing market rates.

Let’s illustrate this with a hypothetical coworking space whose annual gross revenue is $720 000 and the operating expenses are $300 000.

The NOI would be: 720 000 – 320 000 = 420 000.

Based on market data, suppose the cap rate for similar coworking spaces in the area is 7% (0.07).

Then, the final value would be as illustrated below:

Value = NOI/Cap Rate = 420 000/0.07 = $6 000 000

Budgeting the Production: Financial Preparation

Think of your financial records as the storyline of your coworking space’s journey. Buyers love a good story, so keep your plotlines (profit and loss statements, tax returns, and lease agreements) well-organized.

Buyers will scrutinize these records to assess the business’s health and potential for growth. This transparency builds trust and shows buyers they’re getting a solid investment.

Profitability

Before you run to the internet and list your space for sale, take the time to boost your profitability.

Trim the fat by cutting unnecessary costs and finding innovative ways to increase revenue. A little polish here and there can make your space sparkle even more when it comes time for buyers to make a decision.

Rehearsal Time: Operational Optimization

Efficient operations are backstage magic that keeps the show running smoothly. Implement systems and processes that demonstrate how your space will operate seamlessly under new ownership and start practicing now.

Getting your team on board with these new processes before they’re under review will also show authenticity within your organization.

Streamlining Operations

Hopefully, you already have a robust coworking management system in place to ensure smooth day-to-day operations within your coworking space.

If not, now is the opportune time to implement these processes and get your employee base back on track.

Buyers will be looking for a seamless operation they won’t need to put work into, so spend your time ensuring everything runs like clockwork.

Staff and Management

Your team is the heartbeat of your coworking space; prepare them for the transition to ensure continuity.

Evaluate your current staff like you would cast actors—retain key performers and address any underperformance. Create an in-depth plan that ensures a seamless changeover for the new owner.

Tools and Technology

Coming into a business that already has tools and technology in place to help manage and streamline processes will be attractive to potential buyers.

Maintain relationships with your current vendors and/or look into solutions that will help you run your business more effectively.

Having such systems already in place will make the transition easier and provide comfort to the buyer.

Set Design: Physical Space Enhancement

A great looking space speaks volumes about its overall condition and upkeep. Conduct a comprehensive inspection to identify and address any maintenance, spatial, or aesthetic issues prior to showcasing your space.

Maintenance and Repairs

Time to don your hard hat! Take the time and invest the money to tackle any maintenance or repairs before trying to sell. A well-maintained space will be attractive to buyers who don’t want to spend time fixing up the place after the sale.

Think of this as building a set – you need to ensure a functional workspace that is safe and coherent to the needs of your staff. If something breaks during rehearsal, it needs to be fixed before the curtain rises.

Aesthetic Improvements

Give your coworking space the makeover it so deserves. Fresh paint, updated furniture, and optimized layouts can transform your coworking space from drab to fab.

Enhancing the visual appeal, much like enhancing a stage set with lighting and décor, helps create a more vivid and memorable experience.

Don’t feel the need to use next year’s budget making these upgrades either. Consider staging the space with updated furniture to save yourself money and provide a more appealing look.

Presenting the space is all about being strategic and using finesse to show the audience, in this case, your buyers, what life would be like within those four walls.

Could the layout benefit from some quick fixes? Don’t neglect doing them on time.

Trend Forecasting

Another great way to set yourself apart from other coworking spaces on the market is by keeping up with the latest trends and providing an inclusive and welcoming atmosphere.

Introducing new and trendy concepts, like unique collaborative spaces or creative and relaxation zones throughout your space, will let potential buyers know you’re on top of what’s happening within the industry and will make you stand out as a front runner.

Licensing and Permits: Legal and Compliance

Ensure all legal documents are up to date and compliant with local regulations before the big night. Address any potential issues proactively to avoid surprises during the sale process. The last thing you want is to get shut down while the audience is still making their way to their seats, so take the steps to stay on top of legal requirements and compliance.

Legal Documentation

Make sure all your legal ducks are in a row. Verify all lease agreements, zoning permits, and health and safety regulations are up to date and in order. This shows potential buyers that your space is compliant and ready for a smooth transaction.

Due Diligence Preparation

Prepare for the buyer’s due diligence process by having all necessary documents and information readily accessible. Anticipate common inquiries and provide thorough explanations to accelerate the process and make it as stress-free as possible.

Get Your Tickets: Marketing the Sale

There are three things to consider when marketing something as substantial as a play or a coworking space:

Target audience, relevant platforms, and sales strategies, and highlighting your final product in the best light possible.

Target Audience

Who is going to fall in love with your coworking space at first sight? Identify potential buyers—whether investors, other coworking operators, or real estate developers who align with your space’s unique appeal.

Is your coworking space a green one? Then make sure to market it well in front of environmentally-conscious buyers. Knowing your target audience helps tailor your marketing efforts.

Sales Strategy

Craft a killer sales strategy by determining relevant places to list and market your space. Utilize online platforms like Denswap and LoopNet to reach a wider audience.

Don’t underestimate the power of broker networks and direct outreach either. You want to maximize your exposure, so really any publicity is good publicity.

Showcasing the Space

Time to roll out the red carpet! Organize engaging open houses and private tours to showcase your space.

Create high-quality marketing materials, including photos, videos, and virtual tours to give potential buyers a taste of what they’re investing in. Showcase your space like a captivating performance, highlighting its strengths and unique features not available anywhere else.

In Conclusion

Understanding the market, getting your finances in order, optimizing operations and enhancing the physical space, ensuring legal compliance, and strategic marketing are the vital steps you need to take to prepare your coworking space for sale.

So, the house lights are on, the music has started, and the curtain is rising – are you ready?

With these tips in your toolkit, you’re ready to attract the right buyer and make a profitable sale. Start preparing your coworking space for sale today. Happy selling!