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After touching its nadir during the pandemic, the co-working market has risen like a phoenix. With demand rising again, co-working players are expanding aggressively, too. But there is a vital difference this time around
By: Arnab Dutta
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When the Covid-19 pandemic hit India’s shores in early 2020‚ Awfis was already one of the top three players in the flexible workspace market. Founded in 2015, the New Delhi-based company had its footprint across 55 centres, with some 30,000 seats and a million sq. ft of co-working space under its fold. That, however, did not come to its rescue. As the country went under a stringent lockdown and confusion reigned over the impact of Covid-19, companies sent their employees back home, leaving co-working space providers like Awfis high and dry. Amit Ramani, Founder & CEO of Awfis, says the firm witnessed a significant drop in business. At the time, some 55 per cent of its business was coming from smaller customers, who had leased less than 100 seats each. “The smaller customers left and that obviously impacted us as our revenue dropped significantly,” he recalls. The impact was felt equally among other co-working space providers as well.

However, things turned for the better after the second Covid-19 wave began to recede in mid-2021. Enterprises went from work-from-home to hybrid work, and eventually several businesses asked employees to return to physical office locations. Result: the co-working operators were back in business. And how! “Post the second wave, especially from July 2021, the recovery has been extremely strong,” says Ramani. Awfis has recorded a 400 per cent jump in its seat leasing compared to pre-Covid-19 days. “If we were doing, say, 1,000 new seats every month, now we have touched 5,000. So, it’s five times.”

Post the Covid-19 second wave, especially from July 2021, the recovery has been extremely strong... If we were doing, say, 1,000 new seats every month, now we have touched 5,000

Amit Ramani
Founder & CEO

In fact, it almost appears like Covid-19 had arrived as a blessing in disguise for the co-working sector. In spite of the initial uncertainties over its future, the business has since come back stronger than ever.

In end-2019, just before the pandemic, the flexible office spaces market was spread over some 30 million sq. ft, with 471,782 seats across the top seven markets in India, per JLL Research data. This number plummeted to some 20 million sq. ft and 312,990 seats in end-2020. The recovery since then has been impressive. By June 2022, co-working spaces in the top seven cities had grown 117 per cent to nearly 43.4 million sq. ft, with over 679,760 seats. By end-2022, JLL Research estimates the numbers to grow to 50 million sq. ft and 750,000 seats. In three years, the co-working space market is set to cross the 1-million-seats-mark with some 1,030,000 seats under its fold in the top seven markets spread over 75 million sq. ft.

“Covid-19 accelerated the growth of the flexible workspaces significantly,” says Neetish Sarda, Founder of Smartworks, one of the leading players in the co-working sector. Smartworks had less than 2 million sq. ft of office space under its fold in early 2020. Its operations have since jumped by over 250 per cent to more than 7 million sq. ft. “We have grown almost triple in size. And the aim now is to grow further to 28-30 million sq. ft in the next three years,” he says. Currently, its operations are spread over 39 centres in 13 cities that house some 160,000 seats.

According to Samantak Das, Chief Economist and Head of Research and REIS (Real Estate Intelligence Service) at JLL India, one of the key factors that initiated this resurgence is the hybrid workplace model that emerged post pandemic. “The pandemic brought forth the concept of hybrid workplaces. The need for a workplace that makes an employee feel safe and secure, and underlines that flexibility is no longer [just] a need, [but] is a reality today. With changes in mobility and office design arising from the evolving remote or hybrid work environments, multi-pronged approaches to occupier portfolio strategies will also pick up momentum, thus bringing forth the need for flex spaces,” he says.

Another factor that has proved to be pivotal in the comeback saga, is the influx of large corporations as tenants in the co-working space market—traditionally dominated by new-age IT companies. According to Irfan Razack, Chairman & MD of Prestige Group, corporate entities are preferring ready-to-move-in office setups, instead of leasing out buildings and setting them up on their own. “It’s a win-win situation. Companies prefer spending a little more for a shorter-term contract with co-working space providers and save themselves from investing in infrastructure. On the other hand, this is [boosting] the flex workspace market and, today, there are many more successful players than a few years ago. Post-Covid, co-working spaces are the way forward [for the commercial real estate market],” he explains. The Bengaluru-based realty major has leased out a significant part of its recent developments to leading co-working players like WeWork, Awfis and Table Space.

Companies that never considered flexible workspaces as an option are now looking at such solutions. The trend is now broad-based and not confined to a specific sector like earlier

Karan Virwani
WeWork India

“Flex operators are in a unique position to offer solutions to occupiers (tenants) that allow them to gently ease the workforce back into offices. They have also taken up the ‘real estate as a service’ concept by offering solutions to occupiers that help them gradually bring employees back to offices,” says Das from JLL.

Unlike the conventional office leasing model that has longer lock-in periods, flex workspace contracts allow firms to keep their commitments shorter—leaving ample room for reconciliation in the near future. Co-working space contracts can be as short as 9-12 months, compared to 5-9-year contracts in conventional leasing. Such models, says Peush Jain, MD of Office Services at Colliers India, allow MNCs to place the office set-up costs as operating costs and put them in their profit and loss accounts, rather than placing them under capital expenditure, freeing up capex budgets for other investments.

Karan Virwani, CEO at WeWork India, has also noted the change in clientele of late, despite the brand’s global outreach having been an asset for acquiring larger clients even in the past. In 2017, the entry of New York-headquartered WeWork in India through a franchise model had provided the sector an initial boost. One of the leading global brands in the sector, WeWork’s India operations are handled by Bengaluru-headquartered Embassy Group, and it is already one of the larger players in the country. “Companies that never considered flexible workspaces as an option are now looking at such solutions. The trend is now broad-based and not confined to any specific sector like earlier,” says Virwani. “Imagine hard-core traditional organisations like public sector banks taking up flexible workspaces. We have completed a few such deals in Mumbai recently. Apart from start-ups and IT/ITeS players, even law firms are now availing co-working spaces.”

One of the key factors that has led to this change in strategy for companies that otherwise shied away from flexible solutions is the realisation that leasing and managing office spaces may often lead to leakages and redundancy—increasing cost burdens.

Currently WeWork’s India business is spread across six cities and covers a little less than 5 million sq. ft. The recent spurt in demand for flexi-office spaces has resulted in the rise in its occupancy level to 90 per cent, leading Virwani to look for rapid expansion. It has already secured 660,000 sq. ft space off Noida Expressway from Bhutani Group. According to Virwani, by March 2023, WeWork India would add some 1.5 million sq. ft of commercial leasing space to its portfolio. From some 55,000 desks at the end of 2019, WeWork has so far added 13,000 to its portfolio, which Virwani says would go over 80,000 by end-FY23. The boost in demand has also helped it turn operationally profitable for the first time in India, with Ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 25 crore in the January-March quarter. Virwani says revenues have grown 70-80 per cent in the past one year and the company is expected to clock nearly Rs 1,500 crore turnover in FY23 with an Ebitda margin of 15-20 per cent.

With nearly 50-60 per cent of its upcoming launches already leased out, Virwani sounds confident about the prospects of his business, despite the hiccups faced by WeWork globally. “In the past two years, we didn’t expand much due to Covid-19. We did close a few deals but those were mostly to match the occupancy levels. It is now that our growth phase is actually beginning. We will add 16,000 seats in the next four months, compared to 13,000 that we added in the past two and a half years. At the company level, we are now profitable and our next phase of expansion would be done with an eye on the bottom line,” he says.

Covid-19 accelerated the growth of flexible workspaces. We have grown almost triple in size [to 7 million sq. ft]. The aim now is to grow further to 28-30 million sq. ft in the next three years

Neetish Sarda

According to him, the success of the India unit, which was the first franchise business for WeWork globally, is now encouraging the executives at the New York office to franchise out more markets, especially the non-core ones. That would help them focus on their core markets like the US and improve profitability. Of course, the prospects of the India market excite Virwani equally. He believes the flex workspace market’s growth is set to rise further as India is rapidly turning into a preferred destination for global technology companies, and also among the rapidly growing tribe of start-ups in the country. Data from JLL Research shows that the share of flex workspaces in gross office real estate absorption has jumped recently. From 10.4 per cent in 2018 and 17.5 per cent in 2019, flex workspaces formed 20.4 per cent of all office space absorptions in the top seven cities during January-June 2022.

To secure its position in this ride, WeWork has already chalked out its game plan. According to Virwani, the company is working on a number of products or solutions based on technology. The ‘office on demand’ product that it introduced after Covid-19, for instance, was developed to offer customers a turnkey solution to rent or lease desks at its locations on a real-time basis, much like a cab booking mobile app. The company recently acquired a B2B SaaS product named Zoapi that provides seamless collaboration between meeting rooms and allows usage of multiple videoconferencing applications like Zoom, Webex and MS Teams through one platform.

As larger players head for aggressive expansion, use of technological tools is increasingly becoming important in a sector that is otherwise perceived to be managing physical real estate. “Consumers don’t get to see the extent of technological interventions that are happening in a co-working space environment. But it’s only growing to operate our business more efficiently,” says Virwani. It has recently identified an artificially intelligent software that offers analytics on peoples’ usage pattern of spaces inside a flex office. Further, similar tools are being used to improve a building’s performance on the environment and sustainability front by cutting down on wastage of water and energy.

The influx of larger corporate clients has also meant a paradigm shift in the offerings and operations of co-working space players. Earlier, meeting rooms, cafeterias and corners for socialising were standard offerings for a co-working setup. Now, there are several interesting additions—from cricket fields and badminton and basketball courts to football fields and terrace gardens. All are now part of the offering, says Shesh Rao Paplikar, Co-founder & CEO of BHIVE. The Bengaluru-focussed co-working space player, founded in 2014, has grown from 200,000 sq. ft to 1 million sq. ft in the past one year and is now aiming for 2 million sq. ft capacity by next year.

The work-from-home model that became prevalent due to the pandemic has also opened up newer markets. While the top seven markets—Delhi-NCR, Mumbai, Pune, Bengaluru, Chennai, Hyderabad and Kolkata—have always been on the flex workspace map, of late cities like Jaipur, Indore, Kochi and Lucknow have emerged as new destinations for such set-ups. Per a recent survey by Colliers & Awfis, nearly 40 per cent of the workforce in IT/ITeS, new tech, consulting and telecom companies continue to work from their hometowns. Overall, 74 per cent of the companies are now opting for a distributed workforce, instead of bringing all employees to their central campuses in top metros.

Earlier, meeting rooms and corners for socialising were standard offerings for a coworking set-up... Now, cricket fields to badminton courts and terrace gardens... All are part of the offering

Shesh Rao Paplikar
Co-Founder & CEO

The trend has already got the attention of flex space operators. Since Covid-19, Smartworks has expanded its operations in Jaipur, Indore and Ahmedabad. “A lot of people went back to their hometowns during the pandemic, and continue to work from there. This is leading companies towards opening smaller centres in such towns. If a corporate firm is adding a 100,000-200,000 sq. ft campus in a top metro, then it will likely add 10,000-15,000 sq. ft in a city like Coimbatore, for instance. That’s why every player is now focussing on securing a piece of the pie,” says Sarda.

Paras Arora, Founder & CEO of flex space aggregator Qdesq, concurs. The Gurugram-based service provider that offers a platform for flex space providers and customers, is increasingly witnessing new towns being added to its database. “Covid-19 came as a watershed moment for the sector. Earlier, larger companies used to have one massive campus but now they prefer having the workforce distributed in multiple cities, which is boosting the growth in smaller towns. Even behemoths like Amazon or Accenture are now taking up flex workspaces in locations like Bhopal or Vijayawada. Towns like Dehradun, Vizag and Kochi, too, are now considered as emerging markets,” he says.

According to Arora, from a fifth of the office space market, the share of flex workspaces is set to go up to 35 per cent by 2025 as employers are now more willing to go where their employees are. This not only helps them reduce attrition but is also beneficial for the employees as that helps them keep living costs in check. The share of non-metros in Qdesq’s business has surged to 35 per cent from single digits in pre-Covid-19 days. Qdesq currently has some 4,200 centres listed on its platform compared to 2,500 in end-2019, while the number of seat bookings has tripled since—from 1,500 per month to 5,000. The spurt in demand has resulted in an 85 per cent occupancy in non-metros, while for metro markets it ranges from 80-82 per cent.

While the pandemic hit hard while it lasted, it has also helped boost the sector since. According to BHIVE’s Paplikar, the leasing rates have rationalised and helped him grow 400 per cent in capacity in the past one year as he got better leasing deals now compared to pre-Covid-19 days. “Earlier, the perception was that the co-working space business is easy, anybody can run such set-ups. That led to the entry of a lot of half-hearted players, who were weeded out during the tough times. That not only helped in this rationalisation of property leases but also stopped the pricing war among flex space players,” he says. After WeWork entered India some five years ago, hundreds of players entered the market, which led to unviable pricing. “I was unable to understand the math behind such low pricing. Some were offering seats at a third of what we were charging. It was clearly not viable,” recalls Paplikar.

“At the time we were trying to establish the brand and the concept in India, and we wanted to grow very fast. So, we needed to create a low barrier for companies so that they can adopt the [flex workspace] model. We needed to create some sort of an attractive proposition that pulls. Earlier, we used to do a lot more discounting than we offer today,” says WeWork’s Virwani, adding that now WeWork’s products are more premium than most of its competitors. “While most of our competitors offer desks at Rs 7,000-12,000 per month, ours range over Rs 17,000,” he says.

Gathering momentum from the pandemic, the flex workspace market is now growing by leaps and bounds. Over the next few years, while its prospects look bright, industry experts expect further consolidation to take place in the market. The sector currently houses over 500 players, including standalone operators in smaller towns. While the small-town operators are somewhat immune to this upcoming consolidation phase, it is the mid-to-large size players who may be engulfed soon. “Backend actions have already begun. We will soon see some of the larger players, focussed on metro markets, consolidating,” says Jain from Colliers.


Story: Arnab Dutta
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