Co-Working Spaces: Drivers To The Indian Real Estate

Nakul Mathur, MD, Avanta IndiaNakul has close to two decades of experience working with The Oberoi Amarvilas and Regus Business Centres, and has been associated with Avanta for 11 years now.

The concept of co-working spaces is in demand with advanced communication technology, making it possible for the geographically distributed workforce of an organisation to operate out of different spaces. Since these are economically viable but simultaneously connected with each other, the market for community work spaces has grown several fold in the last decade.

Earlier, India was slow to catch up with the co-working concept as compared to global cities like New York and London. However, the segment is growing exponentially in the last few years, and is expected to grow steadily in our country. At present, 12-16 million of the workforce is operating out of community workspaces. These workforces typically include startup employees, freelancers, and staff of emerging businesses, as well as those of large corporations.

As per CBRE report published in April this year, co-working operators have leased out nearly 2.9 million sq. ft. of area in the first quarter of this calendar year. The increase registered in terms of the area leased out by the segment is four times greater than the first quarter of the previous year (2018). During the period January to March 2018, co-working operators had leased out just around 0.8 million sq. ft. of space. It is estimated that by the end of the calendar year 2020, the quantum of the area leased out for co-working spaces will reach 10 million sq.ft.after rising steadily over the next 18 months.

In Bengaluru, which is a leading commercial real estate market in
South India, 1.2 million sq.ft.of space was leased out to organisations for co-working spaces in the first quarter of 2019. Only 0.2 million sq. ft. had been leased out in the same period the previous year in Bengaluru. Other South Indian cities, including Hyderabad, the capital city of Telangana, made their mark in the co-working space market in the year 2019. Co-working players in Hyderabad leased out 0.7 million sq. ft. space in between January and March 2019. The space leased out for co-working offices in Delhi-NCR and Chennai increased to 0.3 million sq. ft. from 0.1 million sq. ft. During the first quarter of 2019, operators in Pune leased out 0.2 million sq.ft.,which was at par with the corresponding period in the previous year.

Co-working spaces provide companies with viable options for renting offices in prime central areas of cities in a flexible manner at low costs

The future of co-working spaces in India looks bright, since organisations want to cut their capital cost and keep their leases short. For organisations such as startups, newly established small & medium enterprises for renting offices in prime central areas of cities in a flexible manner at low costs.

There are more than 100 branded coworking spaces operating in India at present, and this number is expected to expand by more than four times in the next three years. Occupancy levels have been 90+ percent for most of the branded operators while nonbranded operators have witnessed occupancies in the range of 80-85 percent. In the upcoming years, flexible space is unlikely to be limited to office buildings only in cities, operators would move to retail spaces as well for developing co-working environments. Co-working operators across various cities are now eyeing under occupied and under performing shopping centres as well as mixed use developments for developing shared environments.

In the future, co-working spaces are expected to rake-in better returns on investments for developers, landlord, and investors alike. The potential demand for co-working spaces in major cities of the country is very high at present, but the supply of well managed facilities is very low. This can ensure a steady high occupancy for whosoever enters the market with a co-working property. The developer has the liberty of flexibility in deciding the best suited combination of open desks, closed cabins, meeting rooms, conference rooms, or cafeterias depending on the clientele in any location. Rentals of coworking spaces could be renegotiated every year. This provides the option of escalation in rental value of any particular property as compared to the conventional leasing model. Occupiers generally prefer to expand in the same property once their team size grows, thereby minimising the potential of losing clients. In addition, co-working spaces generally become financially self sufficient after a few years of operation and as occupancy crosses the 50 percent market.