Will the collapse of WeWork impact co-working in India?

The SoftBank-backed startup that filed for bankruptcy in the US this week.  (Bloomberg)
The SoftBank-backed startup that filed for bankruptcy in the US this week. (Bloomberg)

Summary

WeWork owns about 27% in WeWork India, which has been one of the parent company’s fastest growing affiliates outside the US

BENGALURU : India’s co-working sector, also called the flex workspace sector, modelled itself on WeWork Inc., the SoftBank-backed startup that filed for bankruptcy in the US this week. How does this development impact WeWork India and other companies? Mint explains:

What went wrong at WeWork Inc.?

WeWork disrupted the commercial office market with its unique co-working model where it took office spaces on lease and rented them to tenants on a short term. This worked well for a few years. But the firm, which started in 2010, grew too fast and spent too much on global expansion. Its troubles became public when investors questioned its rising debt and losses. The firm’s corporate governance practices too were questioned, leading to the exit of founder Adan Neumann. After a failed IPO bid in 2019, WeWork finally went public in 2021 at a much lower valuation. However, it never recovered from the crisis.

How does it impact WeWork India?

WeWork owns about 27% in WeWork India, which has been one of the parent company’s fastest growing affiliates outside the US. The majority stake is owned by an entity of the developer Embassy Group. The Indian entity received $100 million of funding from its parent company in 2020 and has grown in a more measured manner. In fact, WeWork India turned profitable in 2021-22 and won’t be part of the structural reorganization of the US parent. WeWork India aims to clock revenue of 1,800 crore this fiscal year, from 1,460 crore in FY23. As of now, it plans to continue using the brand name.

How is India’s co-working sector doing?

The popularity of co-working continues to rise. Its growth has been phenomenal post the pandemic. There is increased adoption of such workspaces by large enterprises, so this growth could continue in India. The flexible workspace market is expected to reach 126 million sq ft by 2027, from the current 46.7 million sq ft, says a report by IndiQube-CRE Matrix, published in May.

Can the collapse hit Indian companies?

In 2019, after the failed IPO bid, investors questioned the business model. In India, the sector has consolidated, and top co-working firms have proved that the model works. Analysts believe leading operators like WeWork India, Tablespace, Indiqube and Smartworks will continue to attract capital. Smaller firms may find it tougher to raise money but that would be more due to the overall uncertainty in the office sector. Awfis, a co-working firm, plans to go public in 2024. If this goes well, it could set a precedent.

Will back-to-office impact co-working?

It will have a positive impact. Hybrid working models are likely to increase the demand for flexible spaces. Location will play a key role in bringing back employees, and co-working firms, since they operate across several business districts in a city, are an attractive option. They are capable of providing flexi-desks, meeting rooms, and other amenities. For enterprises, flexible work operators also provide flexibility in lease terms, less initial set-up cost, and ease of increasing and decreasing the required office space.

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