COWORKING BACK IN THE GAME
Every adversity leads to an opportunity. In the wake of the pandemic, co-working space has emerged as the practical solution globally. The format has emerged as the vital connection between productivity, well-being and employees' work-life balance. According to the recent CBRE report, the occupiers are exploring ‘Core + Flex’ strategy offering occupiers a way to seamlessly integrate traditional leased and flexible office space in their portfolios. ‘Core + Flex’ allows occupiers to be more financially efficient while providing employees with a consistent experience and company culture. This is an attractive strategy for occupiers to manage lease expirations and minimize underutilization of space. Operators are designing the next generation of flexible office spaces that will include the right mix of private and open space to meet occupier needs. Medium and large-sized team requirements include value data security, company branding, and a highly agile space that can be reconfigured easily. THE WINDS OF CHANGE The pandemic brought about a rethink on the use of office spaces, Businesses are increasingly prioritizing workspace agility, well-being and profitability. We all can vouch for the hybrid work model that is being adopted by corporate and organizations across industries and sectors. The work from home (WFH) is getting replaced by remote working from a co-working space nearer home. Organizations are partnering with flex space providers for expansion in city suburbs and even tier 2 and 3 cities to provide an ideal workspace environment to employees without the hassle of rental offices. This work trend offers a great deal of opportunity to flex space operators to innovate their products and offer workspaces in smaller cities and towns. After all, flexible workspace requirements are no longer confined to start-ups but big enterprises today are occupying a considerable share of co-working spaces. THE BUSINESS MODELS As per Vestian report, flexible space operators today are exploring various types of models in terms of relationship with landlords as well as for generating revenue by offering a host of services. Lease Model: The operator enters into a conventional long-term lease agreement with the landlord. In certain cases, the landlord provides the operator a customized fit-out space and manages the common areas. A large number of operators adopt this model owing to its advantage of providing long term revenue security. Revenue Share Model: In this model, the landlord provides the operator a customized fit-out space and manages the common areas. The operator takes up the responsibility of promoting space and managing the centre, and pays the landlord a share of revenue/profits in lieu of rents. Here, both the landlord and the operator share operational risks as well as the benefits of business performance. Although there are fewer instances of this model, it provides the operator with the benefit of reduced upfront investment. Platform Model: This model entails the involvement of the landlord as an investor while the operator is treated as a separate entity. Accordingly, the landlord takes on a larger share of the risk, and bears fixed and variable costs associated with running the operation. The income stream, thus, is likely to be shifting, yet the association with the operator brand guarantees fair occupancy. High operational risks mandate these assets to provide higher returns. For the operators, there is less capital outlay and risk, while still expanding their portfolio. FLEX SPACE STOCK CBRE South Asia Pvt. Ltd expects the flex space stock in India to cross 80 million sq. ft. by the end of 2025 from the current stock of ~47 million sq. ft. It highlights that CapEx savings, managing headcount volatility, implementing hybrid working, and avoiding upfront fit-out costs would drive flexible space take-up in the coming years. Bangalore, with 14.6 million sq. ft., dominated India’s current flexible space stock as of H1 2022, followed by Delhi NCR with 9.1 million sq. ft., Hyderabad with 7.1 million sq. ft., Pune at 5.6 million sq. ft., and Mumbai 5.3 million sq. ft. Other cities with flexible space stock include Ahmedabad, Kolkata, Chennai and Kochi, as per CBRE. WHAT SETS IT APART Technology adoption in flexible space has been the biggest differentiator for flex spaces. Their strategies are focused on occupier-led requirements, thereby offering tech enabled facilities like IoT-based meeting room booking, sensor based occupancy planning, circadian lighting, parking management systems, air quality monitoring, digital cafeteria solution and collaboration tools like video conferencing and communication platforms. Moreover, the contactless experience of automated doors, coffee machines, motion sensor taps, etc. are much in play from the point of view of health safety and sustainability. The co-working spaces industry is all set for double-digit growth in the year 2023. The hybrid model of the workplace will perform well. As firms continue to evolve with the changing market dynamics and the workforce expectations, price and profitability and distributed workforce strategy will ensure the increased need for on-demand usage of office spaces among occupiers. GROWTH DRIVERS OF FLEX SPACES Vestian expects the share of flexible workspace leasing to increase by more than 25% in 2025 with a 15% CAGR. The total stock will be 1.5 times in 2025 when compared with the total stock in 2022 (E). SMEs Rapid Growth: SMEs are embracing flexible workspaces due to cost efficiency, flexibility, tech integrations, superior infrastructure, enhanced productivity, plug-and-play solutions, and opportunities for networking. Increasing Demand Among The Enterprises: Flexible workspaces, initially occupied by start-ups and freelancers, are now seeing increasing preference by larger corporations in Tier-I as well in Tier-II cities. India’s tech industry employee base is estimated to reach 5.1 million in FY2022 from 4.7 million in FY2021, which would explicitly have a bearing on the office space market. Start-Ups Accelerating Demand For Flexible Spaces: Around 14,000 new start-ups were recognized by the GoI in 2021-22 as against merely 733 in 2016-17, with the country’s Global Innovation Index ranking moving up to 46 from 81. The co-working ecosystem is the preferred go-to option for most start-ups and freelancers. Positive Hiring Intentions: In FY2021, approximately 30 companies hired 3.6 lakh freshers, out of which top companies such as TCS, Infosys, Cognizant, HCL Tech, and Tech Mahindra have hired 2.3 lakh freshers. This alone would translate into the absorption of over 18.5 million sqft of office space in India, which bodes well for the flexible workspace sector. THE OUTLOOK Demand for flexible office spaces has risen with enterprises, start-ups and unicorns. It is being seen as a solution for tackling attrition rates, optimizing real estate space & cost and providing a creative work atmosphere. In addition, the rising competition in the sector has made flex space providers to provide even more differentiating services and customized solutions. Also, tier-II cities have grabbed significant attention for co-working and managed spaces largely buoyed by remote working culture, improving infrastructure in these cities and the presence of a desired talent pool. POPULAR MODES OF FLEXIBLE SPACES THERE IS A CONTINUED GROWTH OF ON-DEMAND AND SUBSCRIPTION-BASED MEMBERSHIP STRUCTURES SINCE IT PROVIDES EMPLOYEES WITH HIGHLY CONFIGURABLE MODELS THAT ALLOW PROVIDERS TO CATER TO REAL-TIME DEMAND AND MANAGE IT USING TECHNOLOGY-DRIVEN APPS AND DASHBOARDS.
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