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The New Avatar of Coworking Spaces

The New Avatar of Coworking Spaces

As vaccination gathers pace and companies gradually bring back their workforce to offices, the new work reality also has coworking companies reinventing their business and operational models

Cowrks office space in Banaglore, Karnataka Cowrks office space in Banaglore, Karnataka

Work from home or back to the office — the debate still rages. While work from home, or WFH as is common parlance now, was a panacea for workflow disruption, companies are acutely aware of the toll it has taken on mental health, collaboration, performance management and, most importantly, the work culture at their organisations. A recent survey by real estate consultancy firm CBRE showed that while the “purpose” of an office may have changed, the relevance of a physical workplace remains undiminished.

The compromise so far has been a hybrid working model, with some employees trudging back to offices and the rest working from home. But, as the pace of vaccination picks up, companies are gearing up to bring back more of their employees into a physical workplace. Only, it may not necessarily be back to their office. Instead, the coworking space is becoming an increasingly attractive proposition.

The strategy around new workplace models is now centred on flexibility, to balance employee satisfaction with business requirements. And this is the biggest reason why, after a year-long lull, coworking space operators are bullish. Indian coworking firms have been bulking up, with nearly 75,000 seats leased this year. Their flex stock, an industry term for a coworking space, currently stands at 36 million sq. ft, up from 31 million sq. ft last year, according to CBRE, and is expected to grow by 10-15 per cent annually over the next three years.

But inching back to business as usual is, well, not business as usual. The terms of negotiations between coworking companies and clients have transcended rental rates and other commercial fundamentals to the value proposition on offer. “The discussions are focused more on ensuring safety measures, privacy, data security, personal security, and density of the space,” says Nidhi Marwah, Managing Director-South Asia, The Executive Centre.

With companies prioritising employee health and well-being as much as productivity, both developers and landlords went back to the drawing board to rethink strategies and redesign workspaces. From hospital-grade air filtration to contactless sanitaryware, and from bigger desk spaces to larger, high-resolution screens, coworking space operators are focusing on both health protocols and productivity upgrades to ensure employers and employees feel safe to get back to offices. And, for now, operators are happy to foot the bill as long as it generates demand.

Demand Drives All

The Covid-19 pandemic hit rental rates, keeping them depressed through much of 2020. But coworking players always believed that would be a blip rather than a long-term price correction. Awfis, which has more than 42,000 seats in 75 locations, saw a 7-10 per cent drop in rentals in the earlier part of 2020, says founder and CEO Amit Ramani. Unlike its peers, the company negotiated with its landlords to switch to a revenue- or profit-sharing model, which helped them tide over the uncertain period.

Now, a gradual recovery has brought back rates to near pre-pandemic levels while sales have actually risen, says Ramani. In fact, except for March and April during the second wave of coronavirus infections, Awfis has been selling double the number of seats it did before the pandemic. “With demand catching up with the supply, prices will stabilise,” says Ramani.

But while they are expanding, coworking companies have changed their approach. Unlike in the boom years of 2017-2019, when operators would lap up office spaces purely on a speculative basis, they are now following a demand-led acquisition policy, says Karan Singh Sodi, Regional Managing Director at consultancy firm JLL. “Since the lockdowns and the associated impact on the economy, occupiers have been relying on coworking operators for their immediate real estate needs as they do not incur any capital expenditure and operators provide high levels of flexibility as far as tenure or contract periods are concerned,” he says.

This flexibility is key as companies are currently operating with short-term visibility on headcount projections and business growth, especially given the looming possibility of a third wave. And even if they hire, companies aren’t yet sure if employees will need to go to an office or can work from home. Moreover, companies’ real estate savings are much lower than they had projected as they are spending on things like ergonomic chairs and a better internet connection for employees working from home. In fact, CBRE’s survey showed that the savings could be about 70 per cent lower than estimated in some cases.

All this means that employers prefer their employees back in a physical workspace, even if it be a coworking one.

Checking In

Leading the pack in the absorption of coworking spaces have been the IT and ITES companies, followed by start-ups. No surprise here given that many of these IT firms have announced robust hiring plans and are willing to go the extra mile to find the right talent, irrespective of location. Interestingly, the withdrawals are also largely from companies in the same sector, points out Nirupa Shankar, Executive Director, Brigade Enterprises. “Consolidation, expansion, reduction and migration are the dominant reasons for the surrendering and taking up of spaces,” she says.

WeWork India says that over the past year, more large enterprises have shifted to flexible workspaces and signed long-term deals. More than 60 per cent of WeWork’s customers are large enterprises, a portfolio that has risen by 10 per cent as firms including Khaitan & Co, Commonwealth Bank of Australia, Tata Sky Broadband and Colliers India move into its office spaces. “Despite the slowdown in absorption of commercial real estate, Q1 2021 was one of the best quarters for us, with 10,000 desks and more than 7 lakh sq. ft of space being sold,” says Santosh Martin, Head of Sales, WeWork India.

Moreover, the geographic spread of coworking spaces is also growing. “Bengaluru currently holds the highest flex stock in the country. The flex segment is expected to witness further growth in cities like Pune and Chennai in the coming years,” says Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE. A growing workforce is now choosing to live and work outside metros or shift back to their hometowns. This migration is generating demand for coworking spaces in tier-II cities such as Visakhapatnam, Coimbatore, Ahmedabad, Lucknow, Chandigarh and Jaipur.

The IWG Group, formerly known as Regus, recently signed franchise partnerships in Jaipur and Mohali. “We are witnessing a high percentage of firms moving to a decentralised structure and operating from a ‘hub-and-spoke’ model,” says Harsh Lambah, Country Manager India, Vice President Sales South Asia, India, IWG. “We want to expand this footprint further to touch even more state capitals and tier-II and III cities such as Panipat and Kochi.”

It remains to be seen if the capital-light model of coworking spaces is merely a short-term, stop-gap measure for companies or a longer-term play. Operators, though, are pulling out all the stops to ensure that customers never leave.

The Makeover

From now on, higher quality build-outs and wellness-related offerings will be the differentiating factors between coworking companies, says CBRE’s Anshuman Magazine. “Technology will serve as a key enabler, with contactless design, air filtration, thermal screening and the provision for high-yield collaboration tools,” he says. These range from everyday use cases such as contactless elevators and sensor-based faucets to productivity hacks such as high-speed internet and state-of-the-art videoconferencing facilities. And they are already becoming the norm.

The most basic change at every coworking space is adoption of protocols for social distancing in common areas such as lobbies and elevators. Some, like 91 Springboard, have also shut their food and beverage outlets for now, for safety. The biggest additional recurring cost for operators is housekeeping, hygiene and cleanliness. But clients are happy to pay more since safety and hygiene aren’t up for compromise.

91 Springboard also offers additional conveniences for clients who have opted for private offices or where a team sits within a private enclosure, essentially forming a mini-bubble, says co-founder and CEO Anand Vemuri. “At present, we have an occupancy level of 40 per cent and implementing social distancing is not a challenge,” he says. In fact, some firms are looking for bigger desks to maintain social distancing. “Some customers are looking for the desk size to be a bit larger. Earlier, they were 4 feet by 2 feet, while now they are looking at 5x3 feet or 6x2 feet,” says Awfis’s Ramani.

And while bigger desks or more spaced-out desks could eat into the total number of seats on offer, operators are happy to comply since, like Vemuri says, they are not operating at full capacity and have room to spare. So, until occupancy rises, they are willing to make such adjustments as long as clients are willing to pay higher rentals for exclusive or roomier layouts. Moreover, these are nuts-and-bolts adjustments that can be rolled back without much hassle whenever required.

With air quality and hygiene becoming critical, companies are also flaunting wellness-related certifications. For instance, WeWork recently got a global certification from The British Safety Council for health and safety measures. On the other hand, the Brigade Group uses Clarico’s app-enabled monitors to ensure superior air quality. 315Work Avenue went a step ahead and hired doctors to bring in best practices. “We have come up with differentiating products like making use of an ‘Ioniser,’ a patented technology that provides hospital-standard air filtration,” says founder Manas Mehrotra.

And for the most part, coworking firms are happy to absorb the incremental costs for such safety and hygiene measures to reel in clients. But once the demand and supply mismatch evens out, they plan on passing on some of these costs to their clients. Experts point out the rising interest from large enterprises could lead to incremental demand in the short- and mid-term.

As the corporate juggernaut limps back to normal, coworking spaces might yet turn out to be the out-of-left-field, unexpected winner in the debate on work from home or back to office.

@rukminirao