Co-Working Market Suffers During Pandemic But There’s Hope
Shared office-spaces were expected to take advantage once the coronavirus outbreak forced businesses to vacate offices and switch to remote working. Yet, they may witness a contraction this year.
Around a fourth of the 27.9 million square feet co-working stock in the top eight cities, which is operated by smaller co-working players, is expected to return to the market soon, the real estate consultancy Knight Frank said in its half-yearly report.
That’s because nearly 80% of the players don’t operate at the scale of the Top-10 in the industry, the report said, leaving their tenant portfolios highly concentrated in small industry segments and startups in specific locations. “We expect that most small operators will find it very difficult to survive this crisis and many won’t be able to sustain,” it said, adding there may be significant exits in the short term.
Some providers of co-working space, however, see the pandemic as an opportunity. Bigger players with a strong client portfolio have capitalised at a time businesses are cutting costs in an economy that’s slated to contract for the first time in more than four decades.
“We added about 6,000-7,000 new seats in the last three months,” said Amit Ramani, founder and chief executive officer of Awfis. “We totally see a ‘V’-shaped recovery for the co-working sector. Even today, we’re doing extremely good in terms of our sales numbers,” he said. “So those sales are happening because people are leaving traditional offices and coming into flexible spaces.”
Awfis’ expansion is based on the bet that the shared office space would comprise up to a quarter of the overall real estate market in two-and-a-half years from around 5% now.
Some companies are even offering perks to their clients.
WeWork India, for instance, has offered “all access passes” to its clients, enabling them to work at any of its 828 Covid-19 ready locations around the world till Nov. 1, 2020.
Awfis launched Awfis@home to provide customised work solutions to its clients working from home. Their customisable end-to-end setup toolkit includes smart desks with stationery and cable management, an ergonomic chair with lumbar support, fiber broadband connection with 100 mbps speed and download limit of minimum 150 gigabytes, remote IT support, among other things.
“As the economy begins to find its way back to growth, flexible workspaces will play an even more important role in rationalising costs and maintaining financial agility,” said Varun Gopinath, chief revenue officer of WeWork India.
By moving away from fixed workspace expenditures and re-allocating budgets to other key priorities, businesses can emerge from the pandemic more agile and adaptable, Gopinath said in an emailed response to BloombergQuint. “Flexible workspaces are a practical choice as companies rise up to face the new normal.”
Abhishek Goenka, chief executive officer of CoWrks, said clients transitioning to co-working places has always been the hypothesis of their business model and the pandemic will only help in bringing it to life. “We’re seeing many such requests and along with the need for distributed spaces and more collaboration spaces in the form of distributed meeting rooms, the outlook is positive.”
Corporates are increasingly looking at the hub-and-spoke strategy, Karan Singh Sodi, regional managing director of JLL India, said, adding co-working players will be its direct beneficiary. Many big corporates are re-examining their portfolio and figuring if they could remove non-core functions (such as human resource or finance) and put them in peripheral locations, he said. That, according to him, comes with two advantages.
“One is, it’s closer to manpower pockets. From an employee perspective, it’s efficient as travel time is reduced,” he said. “Second, from the excel sheet perspective, it’s much cheaper. You average out your portfolio cost by doing this move.”
“The first flexibility that they bring in is—the capex is zero for the customer, and second, flexibility in leasing,” he told BloombergQuint. “In a co-working space, customers can sign up for a month or a day or seven days. You wish and that will be provided.”
Yet, the commercial office space market that defied earlier slowdowns is also feeling the impact of the disruption caused by the pandemic. The Knight Frank’s report suggested a spike in companies giving up office space. While developers dispute the findings, co-working space providers too face a challenge.
Knight Frank, however, also foresees improvement in the co-working sector. “We expect the increasing need for flexibility and the competitive advantage of being a workspace expert will sustain the industry over the long term.”