Co-working moves to new models of growth in India

In the real estate space, the big story last year was of the rise and fall of co-working giant We Work in the US. After a great first half of the year, in which the US-based firm was valued at about $47 billion in January, the company unravelled post a botched IPO attempt in July. As co-working takes strides in India, will the fall of WeWork impact the Indian space?

According to market players and property consultants, growth in the sector will be driven by a shift in ownership patterns and consolidation of the top players in the sector.

In India, despite the collapse of WeWork, the sector did not have a bad 2019. This year saw more area being taken over by co-working players. Meanwhile, private equity firm ChrysCapital invested $30 million in leading player Awfis while SmartOwner, a real estate investment fund put in $4.28 million in Workspace. BlackRock & CLSA Capital Partner have invested $53 million in GoWork.

According to a report by property consultant Anarock, WeWork’s fall is not likely to impact the growing interest in the co-working space in the country. The report, in fact, states that India has more than 200 players, with the top seven companies such as Cowrks, WeWork India, Awfis, Regus, Smartworks, 91springboard and OYO’s Workspaces handling more than 350 centres across the country. The report estimates that this is bound to double or even treble in the next two years.

Another interesting insight that it puts out is that large companies such as Google may also opt for flexible coworking spaces for their short-term expansion plans. Supply has been growing with demand – towards 2018-end, the total supply of flexible workspaces was anywhere around seven million square feet, it crossed 12 million square feet by the end of 2019.

Manish Khedia, Director, Bengaluru & Hyderbad, The Executive Centre, a global company that offers premium flexible workspaces, agrees with the assessment. He says, “India is the second-largest market in the flexible workspace in the Asia-Pacific region after China with over 1,000 co-working spaces. In India, the industry is seeing about 25% to 30% growth every year.”

Revenue stream for landlords

Another report released by consultant Knight Frank is also very bullish about the sector. The report states that even though co-working started out to attract the quintessential startups, co-working companies have now graduated to fulfill the requirements of the mainstream occupiers. Moreover, the report adds, with a growing demand for co-working services, landlords are amenable to partnering with co-working companies and sharing business risks by signing revenue sharing agreements, rather than just rental agreements.

According to the report, the share of the co-working companies in transactions has steadily grown from 5% to 13% of the total area transacted in the office space markets of Mumbai, NCR, Bengaluru, Pune, Hyderabad, Chennai, Ahmedabad and Kolkata in the past two years.

It also points out that companies such as 91Springboard, Smartworks and Awfis have gained market share over 2019. “Indian co-working operations have gradually de-risked their business models by focusing on conserving capital by increasingly adopting revenue sharing or co-management models to acquire real estate, which is their largest input.”

It points out that the focus on revenue streams from allied services is significantly improving business viability. A shift of focus to SMEs and large enterprises is also helping co-working companies see more predictable cash flows, as enterprise requirements are usually larger and for a longer time-frame than the typical startup.

It also points out that the Indian Co-working industry is already a significant consumer of office space but the business model is still evolving with operators constantly re-engineering their client mix and property offerings in a bid to build a more robust and sustainable business.

However, not everyone buys into the optimism. Vivek Durai, founder of business intelligence platform Paper.vc says, “Much like Uber built a large, global but fundamentally unsustainable business, WeWork was an attempt to scale co-working by changing how the world viewed the space. But with a poorly thought out, work-in-progress business model, co-working will evolve but will scale only when another generation of entrepreneurs figure out how improve margins.” He is not very confident about any Indian firm cracking the success code for co-working spaces and states, “None of them have the combination of imagination, capital and persistence.”