4 min read.Updated: 28 Dec 2020, 02:22 PM ISTNaveen Nandwani
Managed office spaces, a concept popular initially among start-ups, is witnessing an increased preference by mid-sized organisations as well as large corporations
Office spaces have been undergoing a series of transformations over the last few years. Evolving needs are changing the way offices look. The need for collaboration has transformed 120-150 square feet cabins into agile workspaces, need for more employees has led to the development of open office spaces and need for flexibility has given rise to coworking spaces.
Reports suggest that the space requirement thumb rule of 100-plus sq. ft. per person has reduced by 20-30%, on an average over the last decade to optimise real estate costs. Flexible office space solutions have emerged as a separate asset class and have grown from 5% in 2016-17 to almost 15% in 2019. Thus, establishing workspace as a service instead of a physical resource, bringing significant agility, flexibility and cost-advantages.
Managed office spaces, a concept popular initially among start-ups, is witnessing an increased preference by mid-sized organisations as well as large corporations. Coworking in India has steadily challenged the traditional office space leasing activity, having grown from an approximately 5% share in 2016-17 to about 15% in 2019.
It is at this juncture of coworking’s super-growth that the outbreak of covid-19 changed the rules once again as social distancing and de-densification of workspace become imperative. The pandemic has also led organisations to reassess the overall seat requirements since WFH (Work-From-Home) entered corporate policies. As a result, most occupiers are considering alternate real estate/ workplace strategies, with some consolidating their operations and others exploring ‘hub and spoke’ model. Under this model, a city head-office operates alongside smaller offices spread across the city based on employee demographics, offering flexibility to employees to work from anywhere or near clients.
Among other measures, the occupiers are heavily dependent on the availability of managed spaces across the city. The physical location of such solutions, therefore, is poised to gain a greater significance in the coworking ecosystem in times ahead.
While pandemic-related uncertainty has impacted the overall growth trajectory in 2020 for commercial office markets, coworking is still expected to contribute around 10% of the overall demand in 2021 and 2022. Despite the initial existential threat posed to the segment, the key advantages of coworking spaces keep this asset class afloat, more so now with corporate occupiers having tight budgets for interior fit-outs and other office maintenance.
The heightened activity in the coworking segment has been dominated by Bangalore and Hyderabad --the cities where commercial office real estate demand is generated mainly by technology occupiers. In 2020, as of Q3, these two cities had a combined share of approximately 66% of the total leasing activity in the coworking segment. The overall stock, expectedly, has been highly concentrated in these two cities, and the share is expected to be 51% by the end of 2020.
Two distinct advantages of coworking are likely to continue post-pandemic.
Owing to the economic impact of the pandemic, setting up office space on a long-term lease may be financially imprudent for small and medium scale organisations, especially when evaluated on a cost per employee basis. The coworking segment plugs the gap with hassle-free services for occupiers and charges are significantly lower across a wide rate-spectrum. The cost differential to traditional office spaces goes up to 45% for occupiers. Even in traditionally expensive micro markets like BKC in Mumbai, Connaught Place in NCR and MG Road in Bengaluru, which have limited office space availabilities, occupiers can find coworking desks at varied prices.
This segment has become an important part of space strategy across the central and secondary business districts of major six cities in India. This is attributed to the flexibility it offers in lease terms and duration, coupled with a lower per-employee cost.
Worldwide, the average coworking centre has a capacity of around 80 people, and the average space leased by a centre stands at approximately 7,000 sq. ft. In India, however, coworking players and operators exhibit greater confidence in the segment. The average deal size of space leased by such players has steadily risen over the past few years and was estimated at around 50,000 sq. ft. in Q2 2020. This indicates the preferences of a dynamic workforce and younger demography, which necessitates flexibilities of design, interiors, collaboration and a sense of community as well.
The coworking operators are constantly evolving to cater to the requirements of occupiers. The pandemic has forced many business segments to evolve swiftly, and the coworking segment is no exception. Some players are repositioning themselves to continue the growth trajectory the sector has been witnessing over the last couple of years. To capture the growing demand flexible space, real estate consultants like Savills India are even aiming to bring better organization by setting up a platform that brings developers and occupiers of flexible workspaces together.
In near future, more coworking players are likely to offer fully managed spaces with enterprise solutions. However, growth in non-traditional markets and exiting from unprofitable centres are likely to move in tandem with each other. While attractive discounts, promotional offers and revenue sharing models with occupiers are expected to form the crux of the immediate strategy for client acquisition and retention for most flexi office providers, niche offerings such as office infrastructure setup at employee homes and customization at the employee level are likely to slowly become a part of mainstream product offerings.
(Naveen Nandwani is MD, Commercial Advisory & Transactions, Savills India. Views are personal and don't reflect Mint's)
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