Evolving business models of coworking in India

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Ramesh Nair | 25 Feb, 2020
Conducive and productive workspaces have become the need of the hour when it comes to providing the right environment to employees and helping them foster growth. With the introduction of coworking spaces and their acceptance in the country, the industry has changed notions about what a typical workspace is and what the functions of a healthy work environment should be. Where earlier the industry was less agile to the changing market and demographic forces, it is now understanding and incorporating elements that can expand and contract operations quickly and give a range of options to its workforce.

The coworking segment in India has seen impressive growth in recent years and is now a catalyst of sorts for modern workspaces. Growth has been witnessed in the number of operators as well as the flexible space take-up in top seven cities of India. The growing popularity of coworking spaces can be seen by the spike in share of coworking in total office leasing. The share of coworking in total office leasing spiked up to 14 per cent in 2019 from 8 per cent in 2018.

The growth in the sector is attributable to the rapid scaling up of existing players and entry of new ones with innovative business models. There has been adoption of innovation and hybrid offerings by the coworking operators. Their networking events, community initiatives and creative designs promote a sense of community and encourage collaboration. The flexibility intertwined with superlative amenities and a community driven ecosystem are attracting occupiers to coworking spaces. These spaces offer unique facilities such as gymnasiums, creche services, food courts etc. that is making them popular.

Who all are occupying the available space?

Apart from SMEs and start-ups who look for cost effective and flexible options, coworking spaces have been gaining traction amongst large corporates too, due to the positive impact of such workspaces on employee productivity. A survey by JLL showed that 40-45 per cent of coworking demand emanated from big corporates, followed by SMEs which contributed to 35-40 per cent of the demand while 15-25 per cent demand came from start-ups.

Several corporates are now moving into coworking spaces to provide an appealing work environment to their employees and flexible leasing, along with added membership benefits that reduce the expenses of running an office space by approximately 15-20 per cent. Coworking spaces provide a holistic approach which consciously and cost-effectively aim to address the employee engagement and real estate needs of all companies, big and small, as well as real estate owners and landlords.

Slow but gradual acceptance

It is interesting to note that the global sentiment with regard to coworking has had a limited impact on the growth of this segment in India so far. Coworking business models in India are evolving considering the altering requirements of the prospective occupiers. Operators are shifting their focus by offering more closed office spaces and fixed seats as opposed to hot desks to cater to the needs of corporates for privacy and business performance. The trend is gaining popularity as the majority of the demand from occupiers is for cabins or closed spaces that have dedicated areas exclusively for the companies who have taken the space from the operator.

Hybrid spaces are a win-win concept for all the stakeholders as this model is benefitting both the operators and the occupiers. Coworking operators get the advantage of securing relatively longer term commitments on leases and therefore create a more stable ecosystem for their businesses. On the other hand, occupiers enjoy dual advantage of the flexibility of a coworking space along with private offices and dedicated spaces.

Another concept that is gaining popularity is the built-to-suit centres in which customised office space as per the requirement of clients is being developed. The trend of 'Managed Offices' is gaining popularity. In this model, the coworking operators undertake real estate planning for their clients by searching a suitable space for them according to their requirements, refurbishing/developing the space as per their specifications and managing the space entirely for their clients. The operators meet all the real estate requirements of the occupiers including managing cafeterias, reception and concierge services, conference rooms, internet lines, power backups, security etc.

Coworking operators are adapting their space according to the needs of occupiers. They are providing multiple options to occupiers ranging from entire buildings dedicated to coworking spaces to coworking offices within conventional work environments. As the coworking players have started to lease larger spaces, the average size of transactions in the coworking segment increased from 52,000 sq. ft. (2018) to 69,000 sq. ft. in 2019.

A new kind of expansion is already underway

Moreover, coworking operators are not limiting themselves to office complexes but expanding their horizons beyond and venturing into shopping malls, hotels and metro stations, as well. The huge potential of this sector is attracting institutional investment and this, in turn, is furthering growth. Investments and acquisitions are not just driving geographical expansion, but also aiding technological augmentation, upgradation of amenities and an increase in the client base.

Landlords and developers have also realised the potential of coworking spaces as reputed brands working out of such spaces also add to the value proposition of the building. Companies are now choosing to opt for coworking spaces as they are having more flexible lease terms, contemporary ecosystem, lower deposit requirements, absence of capital expenditure and help in overall cost reduction in case of the company's cash flow.

The positive impact that coworking spaces have had on employee productivity for corporates and the health of commercial real estate for developers cannot be ignored. Coworking as a segment is expected to expand significantly across several industries and sectors due to a multitude of leasing options and an ocean of choices that are made available, tailored to individuals as well as small and large organisations.