PremiumBENGALURU : Social commerce startup Meesho had just four seats at a WeWork India shared-office facility in June 2020. Today, that number has shot up to 700. Of this, over 200 seats were taken up in the March quarter. The startup has set up over 10 satellite offices in Gurugram, Delhi, Noida and Mumbai, with two more cities in the pipeline. “Our entire workforce is happy with the idea of a flexible office space, be it satellite or corporate," says Ashish Kumar Singh, the company’s chief human resources officer.
Minsara Ncashmygold, an app to sell old gold jewellery, has its main office in Hauz Khas, Delhi. In February, the company took up a cabin and five seats at an ABL Workspaces centre in Noida, so that staff based in that city had quick access to an office. “It is cost-effective, has a concierge service, and is a good place to network and collaborate with other companies at the centre. The team loves the ambience and the positive vibe," says CEO and co-founder Shreshtha Raizada.
Massachusetts-headquartered nference, an AI-driven healthtech company, is looking to add 25,000 sq ft to its workspace network in India, as it calls employees back to offices in a hybrid work model, distributed across metros and secondary cities. Like most healthcare-related firms, nference grew during the pandemic, and expanded from 4-5 dedicated seats at an IndiQube flex work centre in Bengaluru in 2018 to about 270 employees and 45,000 sq ft of workspace now.
“The concept of 100 sq ft per employee in an office is old school. We wanted a more open space, with collaborative breakout spaces, large meeting rooms, pantries on every floor, balconies, a larger cafeteria," says Meela Mathew, director—finance and admin, nference.
After being hammered during the covid pandemic, flex workspaces are making a comeback. Companies have begun resuming office work and the ‘new normal’ has inadvertently renewed demand for co-working spaces. The shift is being led by IT/ITes companies, particularly large startups, which went on a hiring spree after massive funding rounds in 2021. These enterprises are now looking to provide their employees with flexible working options.
Data from Anarock Research show that of the total net office leased space of 34.1 million sq ft across the top seven cities in 2021-22, co-working comprised 13% or about 4.43 million sq ft. In 2020-21, its share was just 5% out of the net absorption of 21.32 million sq ft.
The overall flex office market, including managed office space, is expected to double its footprint across the top seven cities to 75 million sq ft by 2025 and cross the 100 million sq ft mark by 2030, property advisory JLL recently said. Managed office spaces are customised, and designed for enterprises on a long-gestation rental tenure.
Agility, flexible lease agreements, the need for firms to set up distributed offices, and customized workspace solutions are all working in favour of both co-working and managed-office providers.
“We have a campus model for our managed workspaces—large buildings, peppered with different amenities, combining shopping, food and beverages and entertainment–that’s exciting for people to come back to. In a survey in May, we discovered that in a micro-market, attendance rates in our campus were better than average buildings in the area, and that has a lot to do with what we offer beyond office space," says Harsh Binani, co-founder of managed office operator Smartworks.
“The business has changed today. Distributed offices have become mainstream, tier 2 cities are on the radar for the first time, and companies want better quality and flexible offices as work-from-office rules continue to be in a flux," adds Rishi Das, co-founder and chairman of flex work operator IndiQube. “The recovery of flexible offices is steady and not euphoric. Demand remains strong and the headwinds are positive."
Back from the brink
India’s co-working industry was created in 2016. Before that, it was business centres that occupied this space, albeit to a small extent. The 2016-19 period was a phase of discovery and growth, with new operators coming in and different business models emerging. By 2019, the co-working business had taken off, only to be brought down rudely by the covid pandemic and left gasping.
Indeed, while things may be looking very good today, they looked just as bleak a little over a year ago, when the second covid wave took hold in March/April 2021. Tenants left co-working centres or declined to pay rent; physical occupancy was down to nil and the force majeure clause were invoked in several cases. With work-from-home becoming the norm, it was widely anticipated that the nascent co-working business would be come crashing down. Akshita and Ankur Gupta, founders of ABL Workspaces, were on that terrifying roller-coaster ride. In a sense, their story epitomises what the industry has had to endure in the last couple of years.
The wife-husband duo launched ABL Workspaces in 2017, after two not very successful ventures. They wanted to do something new in the rental economy business and were inspired by co-working firms WeWork, Ucommune and Green Desk, which were changing the way people work globally.
Starting with a 50-seater centre in Green Park, Delhi, ABL Workspaces gradually grew to the point of breaking even, with 3,000 seats, in February 2020. And then the covid pandemic struck, forcing the company to close down many centres. Its capacity shrank to 1,400 seats, as people worked from home and companies refrained from leasing new space both in traditional offices and co-working centres.
Just as ABL Workspaces started opening new centres in 2021 and revamped earlier ones, the second wave struck. The company renegotiated all its rental agreements and switched to revenue sharing deals with landlords and offered huge discounts to clients. In Green Park, for instance, where it was charging ₹13,000-14,000 a month for a single seat, it now leased for ₹4,000-5,000, which didn’t even cover its cost.
“We were in huge losses post the second wave, but we still offered whatever the client was comfortable with. But occupancy levels (in our centres) gradually increased to 80-85% and that gave us some cashflow. We have been opening more centres in Noida, because companies find it cost effective, and re-entered Gurugram, where demand is back. We are exploring an entry into Bengaluru and other cities later," says CEO Akshita Gupta.
The operator has 10 centres with around 3,000 seats today, and plans to double the count to 6,000 seats by the year-end. ABL Workspaces is now seeing a month-on-month jump in revenue and raised funding last year.
Revenue sharing is in
After nearly two years, shared workplace operator WeWork India is back on the growth path and plans to add 25,000 seats to its portfolio in 2022. The January-March quarter was the first profitable quarter for the company, which broke into the black in November 2021. In the March quarter alone, it leased around 12,000 seats, across a million sq. ft.
“We are operating a bit differently post pandemic. We are doing revenue-sharing deals with the landlord, which are asset light, no rental costs and no other liabilities. It’s almost like a hotel operator deal. We are also looking at slightly smaller buildings, and trying to spread out in a city. This is prompted by what companies are looking at, which is distributed offices that are closer to home for employees," says Karan Virwani, CEO, WeWork India.
Revenue sharing deals, where operators split revenue with the landlord instead of paying a fixed rent, are becoming a norm now.
WeWork India will expand to 13 new locations across 1.5 million sq. ft in the six cities it is present in by the year-end. It currently has 5 million sq. ft. of operational space and 50,000 active users in 40 locations, across six cities.
ABL Workspaces, too, has begun inking revenue-sharing agreements with landlords.
Managed offices
Pre-pandemic, co-working centres were largely preferred by smaller startups, small and medium enterprises and even individuals, who all wanted fewer seats. However, managed offices have become a preferred option today. As larger enterprises take up flexi office space, managed office operators are offering private, customised, 500-1,000 seats or much more to a single client, at a single location.
Smartworks, which provides managed office space to enterprises, currently has a portfolio of 7 million sq ft across 150,000 seats, in 11 cities. It plans to expand to 10 million sq ft by March 2023.
Simpliwork is seeing increased demand from large enterprises for managed offices. It recently added Kolkata (about 110,000 sq ft), a city that still does not have many organised operators, to its portfolio. The eastern city is a talent pool for IT companies, and large employers want a presence in Kolkata.
“Our growth is demand driven, but we are risk averse and not speculative. Most companies have seen employees performing well from their hometowns in the pandemic. Three years back, we had to make a case for flexible spaces. Today it’s part of the larger office space strategy where companies are looking at distributed offices, with uniformity of experience for employees and similar amenities," said Kunal Walia, founder and CEO, Simpliwork.
However, WeWork India’s Virwani says managed office space is a low-margin, competitive business with a short-term view. “While we will do managed offices, we want to be an umbrella platform, where we offer working solutions ranging from day passes, or ready-to-move-in spaces from single seats to 300-500 seats. Otherwise, we will see landlords cannibalising the managed office space, where they directly deal with companies, do fit-outs and leasing," says Virwani.
Beyond the metros
While larger metro cities remain the core hub, smaller cities are seeing growth in traditional office leasing and flexi space due to the low cost of living, reduced capex and work-from-anywhere trend.
Tier 2 cities, a report by JLL and Qdesq noted, account for 22% of all operational flex centres in the country. There were around 650 flex working centres in these cities as of March 2022, with Ahmedabad having the highest number (125), followed by Jaipur (90) and Indore (90). Some cities entered the co-working scene only recently—Kanpur, for instance, has 12 centres, according to the report.
In the last six months, Bengaluru-based managed office provider IndiQube has signed up 1.5 million sq ft. The third wave stalled decisions by companies for a bit, but the bounce back was quick. With no tier 2 presence up until October 2021, it offers space in six smaller cities today, including Lucknow, Coimbatore, Kochi and Madurai.
However, while tenant occupancy has picked up sharply, physical occupancy in some centres continues to be a challenge. Co-working operator Awfis is seeing 60-65% average physical occupancy—40% in Bengaluru—as IT/ITes companies struggle to bring back employees to work. Awfis has also changed tack from being focused on smaller corporates and SMEs to being about 40% occupied by enterprises today.
Despite the robust recovery in the commercial office market in this year, prevailing uncertainties mean occupiers are still cautious about committing to long-term leases. This has been exacerbated by the visible funding slowdown among startups and unicorns, which has made them cautious about spends.
Stronger enquires are expected to hit the market in a few months for flex space, as well as traditional space, especially from fintech, e-commerce and logistics startups, property advisory Colliers said. Offices have become even more crucial for startups as they set up and inculcate organisational culture.
“There is greater acceptability for flex office options and that will continue and grow. Companies will use this option one way or other, but it will not replace traditional office demand. Rents are already rising and there is a demand-supply mismatch in some markets. Even if 20-30% of the workforce continues work-from-home, the demand is way too much," says Viral Desai, executive director, Knight Frank India.
