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Professionals at a Friday mixer at CoWrks Gurugram facility. (Pradeep Gaur/Mint)
Professionals at a Friday mixer at CoWrks Gurugram facility. (Pradeep Gaur/Mint)

Feeding frenzy over flexi workspaces

  • Shared office spaces are quickly becoming the hip new thing, but will they succeed and remain profitable?
  • A shared workplace offers a plug-and-play environment, helping a firm avoid expensive real estate costs during its lean growth phase

Bengaluru/Mumbai: When Shailendra Tatia interviewed for a job with Azim Premji-funded iD Fresh Food (India) Pvt. Ltd two years ago, it was at the startup’s office-cum factory in suburban Bengaluru’s Whitefield area. Tatia landed the job and the company moved soon after to The Hive, a 100,000 square feet (sq. ft) shared working space inside the upscale VR Bengaluru shopping mall, making the retail zone-cum-hangout-spot-cum-plug-and-play office into its corporate headquarters.

“In a workplace like this, we get a lot of insight because you are working (in the same space) with other companies. When we launch a product, there is a ready sample of consumers, across age groups, for feedback," said Tatia, general manager, marketing and new product development, at iD Fresh. “Most importantly, the flexibility, culture and open space create room for a constant exchange of ideas," he added.

Tatia had checked out other co-working centres as well with his team, but most of them he says seemed too bright and somewhat noisy. “I only wish they (The Hive) open more centres so that people can work from different offices closer to their homes," said Tatia, who commutes 42 kilometres both ways each day, a drive that can consume up to five hours.

Co-working or flexible workspaces have had a transformational impact on office markets all over the globe in 2018. While some markets are approaching maturity, on a global level, there will be continued momentum in 2019, said Knight Frank’s Global Outlook-2019 report. India is no exception. In the last three years, around 350-400 operators have mushroomed, attracting not only startups and the gig economy as clients, but increasingly, large, and small and medium enterprises (SMEs) as well.

A shared workplace is just the latest fad in a consistent line of innovations to the office environment. The modern conception of office work itself is surprisingly very recent, dating back to the early 1900s. But within that short span, offices have undergone some radical changes—from the initial dingy box-like environments, briefly interspersed by celebrated architect Frank Lloyd Wright’s vision of an open office with transparent ceilings in the 1930s, to the Mad Men-esque era of cubicle farms, and now, the present-day unstructured, bean bag-infested spaces of a typical startup.As aspirations and functions associated with work change, the physical manifestation of the office has also inevitably changed. A shared office is the new entrant vying for attention. And it matters whether it clicks or falls by the wayside because a person spends 92,120 hours (over 10 years of an average lifespan) inside an office.

A shared workplace typically offers a plug-and-play environment, helping a company avoid expensive real estate costs during its lean growth phase. The average millennial (23 to 38 years old), who are beginning to crowd out other age cohorts in the Indian workforce, is also beginning to express a preference toward experimental new-age workspaces. And satisfying their needs is at the heart of the challenge before co-working solution providers. The question is: can design and work environment drive a sense of “community" and collaboration at the workplace?

The businesses in the fray have already begun to carve out specific niches. While large operators like WeWork Companies Inc. and CoWrks focus on key cities, Awfis Space Solutions Pvt. Ltd works purely in the value segment and also wants to capture working populations in smaller towns adjacent to metros.

Ankit Samdariya, chief executive officer (CEO), The Hive, is fairly upbeat and says the idea is to create work environments where “members can find everything within their reach without having to cross the road". But there are concerns even at this early stage of an impending transformation.

“The co-working industry has exploded after exponential growth, and changed the way corporates consume commercial space," Samdariya said. “But the business is about scale. Just like the hospitality industry, which is service-oriented, only a few will be able to build a scalable business," he added.

Samdariya echoes the concerns that have been voiced not only in India but globally. What if only a few large operators are left once smaller co-working firms fall by the wayside?

But at least until that phase of consolidation happens, there seems to be no stopping the Indian co-working boom. A 2018 report by property consultants Jones Lang LaSalle (JLL) Ip, Inc. said the potential co-working market size in India is expected to be 13.5 million users by 2020, out of which enterprises are expected to take up 10.3 million seats. By 2030, flexible workspaces could comprise 30% of corporate commercial property portfolios worldwide.

Vibrant work communities

Flexible offices have turned into a big business opportunity, as operators are weaning off the professionals and entrepreneurs from traditional offices to enrol them into these new vibrant, work communities. The overall stock of flexible workspaces in India increased from 10 million sq. ft in 2017 to about 15 million sq. ft by 2018-end, making it among the biggest markets in the Asia-Pacific region, as per data compiled by CBRE South Asia Pvt. Ltd.

Awfis, which opened its first facility in Delhi three years ago and has 30,000 active seats, plans to double that number this year. The firm also has plans to get deeper into the larger metros and enter smaller Tier-II cities like Kochi, Jaipur, Ahmedabad, Bhubaneswar, and Indore.

Awfis founder and CEO Amit Ramani said that today most large companies are looking to enter smaller urban centres and semi-urban towns in the pursuit of newer consumers and a larger talent pool.

As a result, there is a lot of noise in the plug-and-play office space, among both global and local players, he says. “But we are clear that we will be a value-based product because, in India, that’s where 90% of the business is. Capital efficiency is important. The amount of capital which a global player spends to set one seat, we are able to set up four to five seats for the same amount," Ramani added.

But it is precisely because of the value-chasing nature of the Indian business environment that risks are higher. Asia Pacific 2019 report by PwC and Urban Land Institute said in a downturn, some tenants that rent space from co-working operators on a monthly basis are likely to walk away, leaving operators—who are probably renting space from landlords on a five- to 10-year basis—holding the bag.

Operators are looking at partnerships with landlords, with the latter providing design and operational services directly to building owners. Alternatively, operators may buy entire buildings and become asset managers, the report said.

Conventional offices still remain the biggest competitor though, said Harsh Lambah, country manager at Regus, an IWG Plc group company. “Our main challenge is creating awareness about the kind of value proportion that we have as a service provider and looking for the right location to expand our business," he said.

Regus, which started in 2005, is one of the first shared offices or business centres in the country and has around 114 centres across big and Tier-II cities. Two years ago, IWG also introduced its shared offices brand “Spaces" targeting young working professionals.

CoWrks CEO Sidharth Menda believes that understanding real estate is the key to scaling the business. “Getting into the business is not difficult, but it is difficult to scale the business because you not only need capital but you need domain expertise. Our existing relationship with many large Fortune 500 companies has given us a huge benefit," Menda said.

“We work with property owners in various models including straight leasing or revenue sharing. We are now looking at getting into the franchise mode to expand faster," said Lambah.

The WeWork phenomenon

As the operators figure out ways to keep up with growth, the market is showing enough signs that the prevalent idea of an Indian office may change quickly. In less than two years since it opened its first collaborative workspace centre in India, WeWork is present in 21 locations across three cities including Mumbai and Gurugram, with 35,000 desks and 25,000 members.

Analysts say initial years in the business need heavy capital expenditure—in real estate, infrastructure, marketing, and customer acquisition. But once it starts rolling, it’s a high-value business.

In India’s co-working workplace spectrum, WeWork is at the premium end of the market. While that’s been a differentiator in the cluttered sector, Karan Virwani, CWeO, WeWork India, admits that the company sometimes loses deals (customers) only because of pricing.

To expand the customer net and capture a larger pie, WeWork is now introducing newer products to capture a wider range of workplaces. It is going to introduce a lower cost model, going into buildings it typically wouldn’t take up. It has already launched HQ by WeWork, a fully private, personalized, and flexible workspace for growing businesses and with “Powered by We", it can customize a space for a firm in a WeWork location or a firm’s owned or leased space. To keep costs down, HQ by WeWork has a “service-lite" model that includes the core offerings a company of this size needs but without extras, like WeWork community managers in the building.

At WeWork, prices per desk could range from 6,000 to 43,000 per month depending on the location and nature of the desk. One can book a dedicated seat for a certain period of time or choose a flexible one with no fixed desk. There are also private offices with seats designed specifically for small to mid-sized firms.

New business models

On a Friday evening at the WeWork centre in Mumbai’s Bandra Kurla Complex (BKC), the beer taps have already opened as co-workers start milling around in the lounge area. A remix version of Maroon 5’s latest hit Girls like You is playing in the background.

Silky Singh, the 34-year old founder of food startup Fresh Food Co., has been working out of WeWork, BKC, since last August. The year-old firm makes customized meal plans for fitness aware professionals. Singh uses the flexible desk at WeWork to work on marketing plans and meetings, paying around 22,000 a month. “This space brings a different set of energy. Networking is another major benefit. Even if the price is a little premium, it helps to filter the people I’m networking with. I get to meet far more serious professionals from different sectors," said Singh, who worked out of regular offices, other co-working centres, as well as coffee shops before moving to WeWork.

While individuals like her are definitely in the radar, Virwani said firms who sign a long-term commitment are easier for an operator. The team of healthcare technology startup Practo Technologies Pvt. Ltd, for instance, works out of WeWork Salarpuria Symbiosis in Bengaluru, where they have taken 982 desks on a long-term commitment. In a shift, WeWork in India which has done straight leases of buildings so far plans to follow its global policy to do a revenue or profit share deal with landlords, wherein, the latter invests in doing the fit-outs of a centre.

“Right now, 80% of my capital is used for capital expenditure. If I can reduce that even by 20-30%, we can put that back into the operations," Virwani said.

A recent Knight Frank report showed that traditional landlords are rapidly entering the co-working market since economic uncertainty is pushing early-stage firms to seek flexible office options. Large corporations are also using co-working as a launch pad for getting their staff to work in new ways, the report added.

On the whole, notions of what an Indian office looks like seems to be at the cusp of some significant change.

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