Skip to content
Search

News & opinion

21 JUN 2018

Start-up culture to fuel growth of co-working spaces in India

Co-working space is a nascent but growing concept in India. The increasing usage of laptops, smart phones and tablets that are interconnected through wifi and cloud computing has made workers mobile. Traditional employer-employee relationships are being replaced with a complex network of working partnerships between employees, suppliers, contractors, customers and other partners that are a departure from command-and-control, hierarchical management styles.

Employees now want greater control over their time and work spaces while companies are keen on cutting overhead costs. Initially, Alternate Workplace Strategies (AWS) was considered as a transformation strategy for organizations to reduce operational expenses such as real estate costs and overheads. However, increasingly organizations are adopting AWS to enable collaboration and provide flexibility to their employees, in a bid to increase productivity, efficiency and motivation levels, which also help them to attract and retain key talent.

Co-working spaces to dislodge traditional leasing?

The advent of start-up culture since the late 2000s in India has spawned collaborative workplaces that are cost-effective and flexible in nature. In addition, small and medium enterprises (SMEs) too are ramping up demand for such spaces.

Albeit at a nascent stage, co-working spaces in India are growing at a rapid pace with foreign entrants eyeing a pie of the market potential, apart from the existence of local players, and even cafés that double up as co-working spaces. US-based WeWork, which is globally the largest independent co-working company, entered the Indian market in 2017, and has already picked up large spaces in Bengaluru and Mumbai. Indian developer RMZ is aggressive on the shared workplaces space. The company has launched CoWrks, which has already established a presence in Bengaluru, Delhi-NCR and Mumbai within a year. Several home-grown companies too are expanding their reach to tap into the growing demand for flexible workplaces by start-ups and SMEs. AWFIS, for instance, is believed to be the largest Indian chain with 20 centres across the country. With global and local companies competing with each other to offer the best proposition to clients, the space is growing rapidly in top cities in India. Although, Bengaluru, Delhi-NCR and Mumbai see the highest concentration of co-working centres, Hyderabad, Chennai and Pune too are seeing some activity.

Co-working companies prefer to be asset operators

Depending on the location and demography, co-working companies adopt models for their centres. While some prefer to adopt the straight lease model wherein they lease space directly from the landlord and transform it into collaborative space, other models include sharing of revenue between the landlord and co-working operator.

Straight lease

  • property leased by co-working company and furnished
  • asset heavy
  • better control of services
  • capital intensive
  • higher risk
  • optimise revenue through membership.

Revenue share

  • developer invests into space, while co-working company operates the space
  • co-working company gets a fixed rate for branding, culture, design 
  • various revenue share models
  • asset light
  • allows company to focus on core competency.

Operators are increasingly opting to be asset operators, in a model that is akin to the hotel ownership, under which neither do they own the space, nor do they take it up on lease. Instead, the co-working companies undertake branding of the space, design the workplace and work towards getting the right and consistent culture. This is a preferable and sustainable model as it is beneficial for those operators who are not in the business of real estate, thus leaving them to their core competency. Companies typically adopt varied forms in the revenue-share model that dictates the scope of operations for both the parties. In an asset-light model, wherein asset operations are separated from ownership, co-working companies incur lower capital expenditure, with focus on what they do best – creating and maintaining a collaborative environment that can better serve the needs of their clients.

Why co-working spaces?

  • Flexibility due to short-term leases.
  • Apt for specific teams in large companies to be in proximity to clients.
  • Exploring newer geographies.
  • Cost benefit.
  • Lower capital expenditure.
  • Networking opportunities.
  • Scalable.
  • Cost competitiveness – a big factor for occupiers.

The biggest benefit of a co-working space is the cost benefit in the range of 20-50% it offers to clients. Co-working centres charge users by the hour, thereby eliminating excess outgo from client when the desk is not being used. SMEs and start-ups, which typically have a tight hold on expenses can save on expenses such as administrative costs, electricity, water and internet charges as these are typically built into the cost per seat. Some co-working companies also plan the space in an efficient manner to bring down the average space per desk, as compared to traditional offices wherein average pace per employee is about 100 sf. This has the potential benefit of garnering higher revenues.

A start-up reliant model?

Abroad, large companies have been open to relocating some teams in co-working centres as real estate costs are becoming a sore point with prime rentals soaring in some markets. With due importance placed on real estate costs (which is often the second largest cost component after wages), occupiers are looking for efficient utilization of space. This trend is especially seen in BFSI companies globally. For example, HSBC is estimated to have achieved cost savings of about USD 1 million by renting 300 hot desks at a WeWork facility in Hong Kong. While globally, companies have been more open to the idea of co-working space, occupiers in India are yet to warm up to the idea of housing some teams in such collaborative centres.

Since start-ups and SMEs comprise of majority of the client base in co-working centres, the model is currently completely reliant on the start-up culture in India. While co-working companies are looking to attract MNCs and established domestic occupiers into the fray, the journey is uphill as only a few companies have jumped onto the bandwagon in India. In India, Boeing, Snapdeal, BNP Paribas have leased desks in co-working centres, in a bid to cut costs and increase flexibility.

Conclusion

We can expect to see a spurt in the growth of co-working offices, which can result in Commercial Real Estate becoming akin to the hospitality industry, wherein leasing spaces are offered and managed by operators on behalf of owners, whilst they are leased by occupiers on flexible options at hourly, daily or weekly basis and shared by multiple occupiers.