As industry watchers are aware, times are good for commercial real estate in India. Multinationals are expanding operations, urban populations are growing, and office absorption rates in key metropolitan areas are reaching record levels. Amid all the positive news is one particularly striking trend: the advent of the coworking space. This concept scarcely existed a few short years ago, but its red-hot growth is making property investors sit up and take notice. If commercial real estate in India is progressing at a brisk clip, this new market segment is hurtling forth in an all-out sprint.
A handful of companies are vying for leadership of this segment—but right now, the market is growing so fast that they all stand to prosper. WeWork India is just the standout among a number of companies clambering for market share and raising headline-worthy investment sums to do so. Supporting this sense of optimism are solid fundamentals. The substantial economic and practical benefits for customers mean that this concept, far from being a flash in the pan, is highly viable with excellent prospects for scaling.
Coworking spaces are built on a plug-and-play model. Also called flexible workspaces or shared offices, typical coworking setups feature desks, communal tables, conference rooms and informal lounges, along with amenities such as wifi, scanners and printers, pantry areas, backup power, reception, and security. Day passes for individual “hot desks” can be as low as Rs 250. The model holds an obvious appeal to freelancers and independent contractors, who may yearn for a professional place to work outside of home, but small and medium-sized business are also well represented in the customer base. MNCs, too, have also begun turning to coworking spaces for housing specific teams or giving their employees the ability to avoid unproductive commutes.
From a financial perspective, coworking spaces offer excellent value over conventional offices. For starters, customers can bypass the costs of equipment, insurance, and utilities. Adding further to the allure is the freedom from large rental deposits and lengthy lock-in periods. Then there is the considerable appeal of flexibility: Users rent out precisely the space they need at the present—nothing more, nothing less. Gone is the wastefulness of underutilized capacity—for example, those empty rooms or wings in a traditional office for which a company pays needless rent. The shared office customer can be crisply efficient, paying for immediate requirements and not a square foot more.
A further cost advantage is less obvious, except perhaps to those with hands-on experience in fitting out office interiors. What’s advertised as “office space” in India can be little more than a concrete shell; tenants often shoulder the burden of dividing a cavernous area into rooms, installing plumbing for washrooms and kitchens, covering floors and walls with suitable materials, and so forth. These fit-out costs can easily run into thousands of rupees per square foot.
And that’s not even counting the managerial cost of setting up an office. Tasks such as identifying and supervising contractors, establishing utility services, selecting designs, and enforcing timelines can divert the attention of a company’s leaders away from core business imperatives. After office interior work is completed, the ongoing expenses of maintenance and administration, including the associated headcount, are a further drain on resources. Shared office spaces enable customers to skip this entire category of financial and managerial expense and instead focus on the activities that will grow their businesses.
Proponents of shared spaces argue that cost savings and physical convenience, compelling as they may be, are only part of the equation. The other part, they say, is a sense of community and support that these spaces offer. The leading workspace providers go to considerable lengths to aid their members’ professional development. These efforts include hosting meet-and-mingle events, bringing in guest speakers, conducting skills workshops, and creating mentorship programs. In overseas markets, where the coworking scene is more mature, these centers have also attracted MNCs and investors on the lookout for entrepreneurs with great ideas. At their most effective, coworking spaces are less about renting out a desk and more about being part of an ecosystem of enterprise. In India’s vibrant economic hubs, especially cities such as Bangalore with high concentrations of entrepreneurs and innovators, coworking spaces have the potential to be a disruptive force.
Given the currently limited supply and the superb growth prospects of this market segment, it is easy to understand the investment rationale. For the individual investor, opportunities may be harder to come by than they are for institutional investors, but they are worth seeking out. As more and more coworking spaces begin to dot India’s urban landscape, those who get a jump start on this nascent trend can expect their investment to go the distance.