Co-working spaces get corporate boost

Co-working or flexible workspaces are gaining a lot of traction with corporates increasingly looking at the option and account for approximately half of the occupier base of this operator. These flexible workspaces are expanding their footprint at a rapid pace even as consolidation too has been on the rise in this segment.

The co-working option is quite viable for small start-ups and a corporate occupier alike because it comes bundled with the promise of a plug and play facility. Single occupancy cost and wider benefits of adding further capacity as per the requirement along with perks like accessing other office spaces of the operator across different locations, only sweeten the deal further.

"Thus, ease of working in such pocket-friendly and hassle-free set-ups is quickly increasing the popularity of co-working space across the occupier groups," reads Knight Frank's report on co-working spaces. Hence, the corporates who want to cut costs are increasingly taking up co-working spaces and account for about half of the occupier base.

The real estate sector is estimated to grow to $650 billion by 2025 and surpass $850 billion by 2028 – driven by emerging asset classes such as affordable housing and co-working spaces -- states KPMG report – Indian real estate and construction: Consolidating for growth.

The massive upsurge in the real estate market combined with the fact that early entrants might be reaching a critical point of expansion has boosted the culture of consolidation, buyouts and mergers in this space. GoWork, which owns the world's largest co-working capacities, is planning to raise $200 million in its next funding private equity and sees mergers and buyouts as the next big move in the industry.

Another giant, WeWork wants to double its location as it completes one year in the Indian market. Similarly, CoWrks wants to double its current space by the end of this year with 23 operational centres.

"Co-working spaces are also looking to transform their operational model, as the leasing cost is expected to go through the roof considering the scarce inventory availability. While high returns are expected in the industry, smarter co-working players are opting for a correct mix of owned and leased properties, as it gives them flexibility in operations, allowing them to cater to specific client needs while strengthening the overall health of the business and economy," said Sudeep Singh, co-founder f GoWork.

"The Asia-Pacific region is touted to achieve the maximum growth, with India and China as the potential leaders in the co-working domain. As a result, the sector is also witnessing an increased interest from global investors," added Singh.

Disproportionate inventory availability compared to high demand has forced co-working space providers to focus on cutting down competition and have a greater share in revenue. As most of the small-medium players get a realisation of the pervasive rule that gets established by the giant players with time, this exciting phase is expected to begin by the middle of next year for co-working which will see a lot of acquisition, merger and buy-out actions, according to Singh of GoWork.

"As the race intensifies in the office space industry, we will also see the service providers reaching out to niche service providers with a focused brand offering," he added.

Already in this business for past nine years, Avanta Business Center also wants to rapidly grow its presence. Nakul Mathur, managing director, Avanta Business Center told DNA Money that in the next five years they will be operating in all the key metros at prominent business addresses. Overseas, Avanta will also set up business centres in Hong Kong and in the Middle East. In the next five years, Avanta will grow to 50 business centres and manage over two million sq ft space.

According to Collier's India office overview and the outlook for the Q3 report released earlier this month, flexible workspaces or co-working has contributed close to 13% in Q3 office leasing, reporting a 2x growth from the last nine months of 2018. This trend indicates that 2019 will be even more active year for the flexible workspace sector, fuelled by an increase in end-user demand from the IT industry, looking for ways to mitigate real estate costs and seeking flexible solutions. Bengaluru, Hyderabad, Mumbai, and Pune are some key markets witnessing the trend.

A fairly new entrant – Smartworks already has 1.5 million sq ft across 15 locations in nine cities in a short span of two years. Co-founded by Harish Binani and Neetish Sarda, the firm has aggressive plans to expand its footprint further and aims to lease close to 10 million sq ft of co-working space in the next three years. They plan to grow the firm's footprint by nearly 400% with new centres in tier-1 cities. Since the beginning of this year, Smartworks has opened several new centres including one in Hyderabad in June and two in Chennai.

On the subject, Shishir Baijal, chairman and managing director, Knight Frank India said, "With changing perceptions of office, the workplace is now being looked at as an environment that needs to be managed and optimised. It is being viewed as an instrument that could drive a dynamic and vibrant culture of corporate productivity impacting financial, cultural and environmental ethos of the organisation. The co-working phenomenon is gaining wider acceptance with mainstream Indian occupier as big corporates today constitute approximately 50% of the overall client roster."

Anarock Property Consultants chairman Anuj Puri opined that such flexible offices are a threat to conventional offices as they have redefined the work culture globally and India is one of the most fertile grounds for the growth of this new work environment option.

However, it continues to be at a very nascent stage in India and with the ever-growing number of start-ups in the country, demand for such spaces is growing tremendously. In the current scenario, this segment is expected to grow at an annual rate of almost 30-40%. There certainly exists an immense opportunity for multiple players to leverage the growth of co-working spaces in India, added Puri.

SHRINKING SPACE

• $850bn – Real estate sector estimated to grow by 2028
   
• $650bn – realty sector expected to grow by 2025
   
• $200mn – GoWork planning to raise via private equity