Co-working firms rework rental terms with landlords, halt expansion3 min read . Updated: 11 Jun 2020, 10:22 AM IST
- Start-ups had signed long-term leases with landlords and sold or leased them to companies for shorter tenure through flexible contracts
- Most co-working operators have given waivers and rental discounts to customers for April and May but are charging full rent from June as they reopen centres
BENGALURU: As many people continue to work from home despite the unlocking of businesses, co-working firms are staring at uncertainty that lies ahead, and keeping costs under check, putting brakes on expansion and seeking rent waivers or deferment from landlords.
WeWork India, the Indian affiliate of New York-based WeWork Global, is taking stock and trying to reduce costs, as it scans through its portfolio of buildings and rental expenses.
“We have been in discussions with landlords for rent reductions or waivers, and in many cases some deferment or leeway has been given. In a few places, we have given up the buildings. We are looking at conserving cash and managing operations and not signing new deals unless the landlord will fund it," said Karan Virwani, CEO, WeWork India.
WeWork India, which last week said it will receive $100 million funding from its parent, laid off around 20% of its employees in May to streamline costs and with aim to turn profitable by early 2021.
Amit Ramani, founder and CEO of Awfis Space Solutions Ltd said primary challenge has been that landlords are not being supportive in terms of rental waivers.
“...If you have a long-term lease and companies or clients have short-term agreements, there is a mismatch. Our clients have a tenure of 18 months and (larger) enterprise customers have a tenure of up to 36 months. While we don’t want to invest new capital now, expansion will be managed aggregation, in partnership with the landlord through a profit share model," Ramani said.
Viral Desai, national director, office transactions at property advisory Knight Frank India said many co-working firms have engaged in “buying long and selling short".
Simply put, these start-ups signed long-term leases with landlords and sold or leased them to companies for shorter tenure through flexible contracts.
“When the overall business was doing well, it was okay. But now, it’s a problem when companies want to exit because of various challenges. Those operators which have developed built-to-suit facilities for clients, with a 2-3 year contract should be fine," Desai said.
Co-working operators, in most cases, have also given waivers and rental discounts of up to 50% to customers for the months of April and May but are charging full rent from June, as they reopen centres. Some companies are however still asking for discounts from operators.
“There are customers, particularly start-ups, who wanted waivers and discounts for June too, because their business continues to be impacted. But it’s tough because we need to pay the landlord too to keep the centre open," said a small Bengaluru-based operator, who didn’t wish to be named.
Anand Vemuri, CEO, 91 Springboard said most of its small or mid-sized landlords have given a waiver concessions, while owners of corporate parks mostly decided not to.
“Around 15% of our customer base said business has been impacted and they don’t want to return and some customers are still requesting for discounts and waivers. The format of workplaces is set to change as companies now want employees to have shorter commute time and flexibility in timing. It’s a volatile situation where there is a lot of inflow and outflow of clients," Vemuri said. 91Springboard has opened up centres fully in Hyderabad, Bengaluru and Goa while those in Mumbai continue to remain close.
Before the virus outbreak and lockdowns, many co-working startups were looking to raise fresh capital and turn profitable to support the next leg of growth, after rapid expansion in the last few years. If expansion happens, it will largely be through managed aggregation in partnership with landlords and an asset-light model.
But the main concern still remains that not too many people are back at co-working centres. While in Delhi and Mumbai, it’s as low as 10%, Bengaluru has shown a slight higher turnout at around 30-35%.
Abhishek Goenka, CEO, CoWrks said there is some uncertainty given that larger companies are still thinking through their workspace strategies and don’t have a clear policy on that front yet.
“...We are looking at an asset light model wherever possible, where we can function as operators and don’t need to spend on capital expenditure. The fact that we have large enterprise, longer tenure clients and not many small startups has helped," Goenka said.