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Co-work spaces vs traditional offices

LiveMint logoLiveMint 18-09-2017 Ashwini Kumar Sharma

International as well as home grown companies offer co-working spaces in India. What impact is this trend likely to have on commercial (office) tenancy sector, we ask the experts.

Anshuman Magazine, chairman, India and South East Asia, CBRE

Over the past 2 years, India’s office market has witnessed robust activity across key cities. Apart from high annual absorption figures, the segment has made big strides in adopting global formats and in adjusting to new concepts. The advent of co-working spaces is being called the next wave of disruption in office segment. It is gaining prominence in the country prompted by rapid urbanization, rising office rents and lack of quality ready-to-move-in supply. During 2016, demand for such spaces tripled as compared to 2014. Leasing of co-working spaces is expected to cross 1.5 million sq. ft in 2017 and is expected to touch 10 million. sq. ft by 2020.

With domestic and international companies focusing their expansion strategies on cost efficiencies, attracting the right talent, optimization of business operations and space utilization, co-working is not only changing the dynamics of office spaces in India, it is also defining corporate culture. While still at a nascent stage, the benefits that these spaces offer are making them a preferred choice for several companies. With more entities getting into the co-working segment, there could be some short-term impact on demand for traditional office spaces. However, in the long term, India’s office market has the capacity to absorb development of both co-working and traditional offices spaces. We expect both to address their own set of demands. 

Sanjay Chatrath, executive director, NCR, Colliers Int’l India

India offers a great opportunity for co-working space operators to profit from rising demand for flexible, innovative and collaborative workspace designs. Co-working operators plan to lease over 7- 8 million sq. ft by 2020. We foresee concentration of co-working spaces to intensify further in Gurgaon, Bengaluru and Mumbai, due to the availability of adequate infrastructure and opportunities for start-ups. With the rise of the millennial workforce, which is estimated will make up 50% of the global workforce by 2020, and growth within the technology sector, in particular fintech, more occupiers are seeking flexible, non-traditional solutions. Conventional lease terms of 9 years, commonly offered in India, do not fit the pace of their growth. We are also seeing established MNCs seek flexible solutions and shorter lease terms to address the challenges they face within the current economic climate.

While these spaces often cost more per square foot in rent, the reduced capital expenditure and flexibility (usually month-to-month ‘memberships’) are enough to offset that. Businesses are also offered both face-to-face and Web-based networking opportunities, facilitated by operators, that they would not normally have access to.

The growth of co-working space poses no threat to property developers. On the contrary, developers can capitalize on the high demand for functional, flexible working space.

Anshul Jain, managing director, India, Cushman & Wakefield

As the modern office buildings and business parks have evolved..., the spaces within are also evolving, driven by the changing needs of their occupiers to increase collaboration, productivity, efficiency in utilization, manage costs and cater to the new-age needs of an increasingly younger workforce. Traditional business centres, which have been present in India over the last decade, are now entering a new realm. Albeit at a nascent stage, co-working spaces in India are growing at a rapid pace, with foreign entrants eyeing a pie of the market potential, apart from the existence of local entities, and cafés that double up as co-working spaces.

The biggest benefit of a co-working space is the cost benefit in the range of 20-50%. They charge users by the hour. SMEs and start-ups can save on expenses such as administrative costs, electricity, water and internet charges as these are typically built into the cost per seat. Some co-working companies also bring down the average space per desk; in traditional offices, average space per employee is about 100 sq. ft. (But) the model is currently completely reliant on the start-up culture.  

While large occupiers may be open to relocating some teams into co-working centers, it would be for relatively short time periods. Moreover, capacity to increase and lack of privacy are often factors that deter companies from opting for co-working spaces.

Ramesh Nair, CEO & Country Head, JLL India

The booming start-up ecosystem in India, encouraged by the incumbent government, has caused a tremendous increase in demand for co-working spaces in the country over the past couple of years. This phenomenon is primarily driven by the massive increase in the number of consultants and freelancers in India, who display a distinct predilection and preference for co-working spaces rather than the more traditional office formats. Co-working business centres are also now gaining favour with companies looking for flexibility in work locations.

Such spaces are popping up across Indian metros as well as tier-II cities, providing start-ups with flexible working options at affordable rents. Co-working office spaces bring in the advantages of cost-efficiency, improved employee motivation and retention. Firms focused on agility who house their innovation teams in co-working spaces can induce a quicker learning curve to integrate them into the entrepreneurial ecosystem. Co-working is also a good option for companies that need their client servicing teams close to their respective client sites in locations with low office vacancy. We have noted that certain co-working operators prefer leasing out parts of or the entire area to ‘anchor tenant’ companies, and that co-working operators and companies move into a ‘hybrid’ sort of space, increasingly relying on each other.

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