Co-working – a Threat to Conventional Offices?

By Anuj Puri, Chairman – ANAROCK Property Consultants

Co-working spaces have redefined the work culture globally and India is one of the most fertile grounds for the growth of this new work environment option.

From simple workplace with ungainly desks and chairs to much better-utilized spaces, automation and even added recreational facilities, office space structures in India have indeed changed a lot. One of the offshoots of this evolutionary process is the rise of workplaces that can be easily accessed anytime and from anywhere – a plug-and-play concept of office spaces.

In short, co-working or shared office spaces.

Buoyed by the Central Government’s efforts to create a viable eco-system for young entrepreneurs, India is witnessing the mushrooming of multiple start-ups and SMEs across the country. Such businesses are increasingly focusing on co-working spaces.

• These shared spaces are often in prime locations and provide a perfect platform for growth-seeking start-ups.
• Moreover, they come at significantly lower costs than traditional office formats
• They offer more flexibility greater flexibility to both employees and employers, and
• They do not require a massive fixed capital investment.

The co-working sector is currently at a very nascent stage in India and with the ever-growing number of start-ups in the country, the demand for such spaces in growing tremendously. In the current scenario, this segment is expected to grow at an annual rate of almost 30-40%.  Thre certainly exists an immense opportunity for multiple players to leverage the growth of co-working spaces in India.

Big names with big plans

Many players have aggressive plans to expand in the Indian co-working space and include WeWork, InstaOffice, One CoWork, The Hive and Skootr Global Pvt. Ltd. Backed by global investment firm The Xander Group Inc., The Hive has plans to expand pan-India with second co-working space to be opened in Chennai later in 2018.

While many players are jumping on the bandwagon and venturing into co-working space, what bears watching is how they keep pace with the increasing demand for such option from the millennials without really impacting their profit margins. As long as they are able to sustain a sound business model and earn a decent return on their investments, the business of co-working spaces will thrive for many.

Will co-working edge out traditional offices?

It has been estimated that by 2020, the demand for co-working spaces in India will surpass that of traditional office spaces. Nevertheless, while co-working has its own growth story for the last two years, the traditional commercial real estate leasing market in India has also been on an upswing.

Large companies continue to follow the traditional form of business by leasing office spaces in prime locations across the top cities in the country. There was a significant rise of 22% in the overall leasing activity in Q1 2018 as against the corresponding quarter last year.

Also, co-working in India does come with its own challenges. While the big name shave certainly got their formula right, many newer and smaller co-working firms are struggling to identify the perfect business model – sub-lease, ownership or JVs.

In fact, many firms had to shut shop because they were unable to get the same returns on their investment as the prevailing market rate. Moreover, quite a few badly-conceived and improperly managed co-working spaces have security issues, are noisy and sometimes overcrowded.

Also, co-working is still perceived by many Indian companies as a major and even suspect divergence from the conventional style of work. These readings clearly indicate that while co-working space certainly has its own growing demand, conventional office spaces nevertheless not leaving the Indian commercial real estate landscape in any particular hurry.