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Why the barriers to scale are high in co-working

The co-working industry in India is in the middle of a boom. But is bust far away?

twitter-logo Goutam Das        Last Updated: August 23, 2019  | 15:55 IST
Why the barriers to scale are high in co-working
Karan Virwani, Co-CWeO, WeWork India

The co-working industry in India is in the middle of a boom. But is bust far away? A recent JLL-Ficci white paper titled 'Co-working: Reshaping Indian Workplaces' pegged the number of co-working operators at 325-330 in the top seven cities of India alone. Other estimates say the number of players could be as high as 400. Many in the industry agree that there isn't space in the market for over 300 players. In some ways, the co-working industry resembles the food-tech bubble of 2015/16. After it burst, the stronger companies consolidated their share.

Business Today recently spoke to Karan Virwani, Co-CWeO, WeWork India. In India, WeWork is a joint venture with the Embassy Group. He explained why the barriers to scale are high in co-working. Excerpts from the interview:

If co-working is the new food-tech

"The barriers to entry in co-working are low but the barriers to scale are very high. Not many players there are who can scale up fast. There are a couple of reasons. One is access to capital, which in India is limited to a few players unlike countries such as China or even the US. Investors also side with businesses whose business plans can hit a scale. There is an extremely long tail. In the real estate industry, there are thousands of developers. However, only a handful has managed to scale and provided quality of service. Co-working is also an operationally heavy business - it is a combination of real estate, hospitality, and technology. This requires expertise."

If more consolidation is expected soon

"I don't think there will be more than five-10 big players. Some players will do well in certain geographies, while others can do it across the country and do it well at a large scale. It is not real estate where I can acquire an asset, change the logo on the outside, and operate it. There are different design aesthetics, different ways of operating it, different segments, different sizes, and different experiences. Only if these are aligned will you see consolidation. In other cases, you will see companies dying out or get restricted to a certain size."

If the key to profitability is managing rentals

"Your raw material is the rental. You need to get the best deal on that. Then it is about the efficiency of the operation. How can you keep the cost of cleaning, the consumables, all of that to a level where it makes economic sense?  We have always been landlords. We have never been tenants. It was a learning. But, we know the prevailing rents in a lot of markets; we have good relationships with brokers. We changed the way deals are done. Landlords don't do zero deposit deals but we only do zero deposit ones. The market takes 10 months security deposit. We don't do it or do very less, or we have it built into the rental. We have negotiated hard."

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