Singapore-based Space Matrix started out as a design firm but the delivery of office spaces was not up to clients' expectations. The industry is so fragmented that it is difficult to get hold of contractors and labourers to get the work done. In order to solve this problem, the company ventured into the office building segment to deliver office spaces as per the specifications. Today, it is designing offices and high-end hotels, and has a large portfolio of global companies across its focussed market in Asia. In India, Space Matrix is doing turnover of about Rs 500 crore. Akshay Lakhanpal, Regional Managing Director, India, Space Matrix speaks about a host of new trends emerging in the office space in a conversation with Business Today. Edited excerpts:
Business Today: In terms of office designs, what are the emerging trends? Co-working is a growing area. Will it be the next big growth area for you or conventional office segment?
Akshay Lakhanpal: There are three-four things pertaining to co-working. One, co-working has just started. At least in India, it's about three years old. An end user can sign off a space without committing to a three-year lock-in period. They have the flexibility to scale up or scale down within that space itself. Whether it's a model which is going to sustain over a longer period of time is yet to be seen. Having said that, it is creating a market, which was non-existent. When co-working setups started out, they wanted to build a vocabulary, so when the likes of WeWork and Innov8 came in, they had a look-and-feel. They want to be cool and funky. Co-working setups are our clients as well.
BT: There is an emerging trend of companies going back from open office spaces to cubicles. Do you see that happening with your clients?
Lakhanpal: Yes. The trend to do away with the cubicle culture emerged eight to 10 years ago. People wanted a flatter organisation, an open door policy where people could walk up to anyone and talk about it. There were no power corridors because all offices used to have doubly loaded corridors with cabins on one side and workstations on the other. People would get frightened to even walk through that corridor let alone get into a room and ask somebody a question. It was good that people got over that trend and made organisations flatter to have some momentum and agility.
For instance, during the day I might have a two-hour requirement of getting into a call or doing something with full concentration. For another two hours, I may want to sit with a larger team to give directions et al. So now the office design is moving towards activity-based space. If you don't need a seat to park yourselves then during the day you can move from a meeting room to an open pod or to a closed room. You can actually be charting your way out; all you need to do is carry your laptop along. You park the bag in a locker and then you move across the office. You don't need to block a space and hence no workstation is required. We do not know whether we will succeed or fail but I think it will take the activity workplace to a different level altogether.
BT: A brief background of Space Matrix and the current work that you are doing in India.
Lakhapal: We are an 18-year-old firm, started by Shagufta Anurag. She had set this up in Singapore and Bangalore at the same time. As of now, we operate out of multiple offices across Asia-Pacific region. We have got global alliances to provide a wholesome service across the globe. But, we are primarily focussed on Asia. We acquired a company in China last year to make sure that we have significant presence in China as well. In India, we have offices across six important cities - Mumbai, Bangalore, Chennai, Hyderabad, and Delhi. We offer design and design-build services, especially to workplaces. We design offices and deliver offices.
There are two more firms, which offer services to four-star and five-star hotels. Another firm is for seven-star hotels. We have got different companies that are part of the same group but our specialisation is workplace design. We feel that our industry is fragmented in terms of delivery; you cannot get hold of contractors and labour to get work done. We saw a segment where the clients had that requirement of making sure that whatever is looking good on paper would be translated into the outcome, therefore we design and build both.
BT: You started out as a design firm, right?
Lakhanpal: We started out as a design firm and had been doing so for last four-five years. Later, we realised that not always, what we design would suit client's expectations. We then started managing projects, so that we get our own people to manage sites. We realised that unless we are cutting cheques to contractors and working with them, we would not get the desired outcome. We brought this model to the country when this was alien and people felt that a consulting firm couldn't do delivery because that was counterproductive and counterintuitive. We faced a lot of resistance from the market. But, now the market is graduating towards design and build and we are pioneers in this field. We closed 2018/19 with a topline of Rs 500 crore. That is the scale we achieved just in India.
BT: What is the break-up of India revenue and global revenues?
Lakhanpal: Talking about just workplace, India contributes 45 per cent to overall revenues, but that is rapidly changing.
BT: How big are the other two verticals?
Lakhanpal: The rest of the two firms don't have significant presence in India; they are primarily based out of Singapore and Indonesia.
BT: What are margins in this business?
Lakhanpal: It's not a high-margin business because it is very scattered. There are many risks associated.
BT: What sort of risks?
Lakhanpal: If we get a consignment of glass coming to the site, and it meets with an accident, of course, there would be insurance but next morning we will have to get the glass installed in any case. Then we go to the market and buy it at any price. Suppose we have workstations coming from the US and for whatever reason, the ship could not reach us in time, then we need to air freight workstations. The clients are not going to pay us for that.
BT: Within office spaces and home and hotel designing, which ones are the fastest growing segments? Real estate market is also down and there's a general slowdown in the economy. Do you see a slowdown in your business because there is less office space being built and consumed?
Lakhanpal: The biggest is residential segment because everybody has to build a house and fit it up. The home segment is big because it touches more lives and hence the growth is faster. The number of projects that they execute on a monthly basis is five-six times more than we would execute. Ticket sizes in home space are obviously smaller than those in office spaces. But, if you add up the ticket size and multiply it by number of projects, revenues might come out to be almost similar.
BT: What is the profile of your customers? Startups used to be biggest office takers about three-four years ago. Flipkart was in news for their Bangalore office and other start-ups were also grabbing large office spaces. Do start-ups still drive the growth in office spaces?
Lakhanpal: Start-ups take up smaller offices and then they grow. It is not common for somebody to take up 700,000-800,000 sq. ft office accommodating 7,000 people in one go. They would go from a 50-seater office to a 100-seater to a 200-seater and that's how start-ups grow. Start-ups used to wait to get to that scale. Most of firms thought of office as an expense and they would not spend too much on the real estate and fit-outs. They would keep growing until they reach the quantum and then move to a huge office. What is changing now is people feel that they have to invest in the office right from the beginning because they want to attract the right talent. If you are going and attracting somebody from IIT and your idea is that he/she should work with you, you should make sure the office has the ethos of that.
That change has made sure that even smaller start-ups are starting to look at office and not just co-working setups where they feel they need to create a brand for themselves. They are using an office to create that brand. The office itself becomes an avenue for them to build a brand. Those kinds of clients are now increasing.
About 50-55 per cent of our customers are multinationals. We have started working with co-working setups but co-working is a short engagement because once you do one-two centres for them, they become smarter, and want everything to be in-house. That becomes more of a cookie-cutter model for them. They might still come to a firm to do a brand-building exercise, but start rolling it out themselves by working with suppliers out of China, thus start reducing cost elements. That amounts to around 7-10 per cent of the business. Start-ups comprise 30 per cent of our clients. We don't have start-ups that are just hiring people but the ones with real purpose.