Shared workspaces at a crucial junction
The concept of ‘co-working’ is a global phenomenon, which was also reiterated in Jones Lang LaSalle global report. It has further indicated that globally there would be one million members (with seat requirements ranging from one to maybe 200-300) who would register with shared space providers.
It is estimated that India has today anywhere between 15 and 20 lakh seating capacity (operational) and there is so much in this space that this figure would be 50 lakh seats by the end of 2018. With all the client acceptance and research-body certification, optimism rose and so did funding for the industry. Adding to it was the minimal entry barriers, allowing players from established industry houses to real estate developers (using vacant inventory) to specific players with good business practices – all putting in money.
Industry observers are talking of 1,200 players being in the space worldwide and within this India has around 300 players. This high figure (proportion of total players worldwide) is in itself an indication of the optimism which has pervaded the space all through the 2016-2017 period. An analyst estimates that just Awfis and WeWorks account for 45-50 per cent capacity.
Analysts say that perhaps this space is suffering from the lack of differentiation. Then what emerges is the probability of too much investment generating too little revenue. As Vikas Lakhani of Instaoffice puts it, in traditional leasing, rent risk and capital risk was with the tenant and most co-working operators have just taken the same onto their balance sheets, despite offering a better risk-sharing value to any landlord. Instaoffice, from inception, has had a very strong cost-control approach which has served the company well and somewhat embodies the current mindset of the industry. The new focus areas goes beyond location, now it is about expectation management in the context of positive unit economics— landlords focus on their yield, clients on the service quality and experience, and vendors on sustainability of their contracts. In short, value for money is being recognised as the key metric. Cash flow must improve with limited extra investment.
Part of the problem is that, as many have said before, the Indian market is a different animal. The concept of smart cities, which players like Awfis are bullish on, take care of volumes but by nature would drive realisations down.
Supplementary services would be a focus area – limited upfront cost, better client satisfaction and hopefully enhanced revenues. Isharespace is clear that these are critical for industry as a whole and as founders Priyanka Krishnan and Aayush Maheshwari said, sometimes revenue increase is not important. A company would typically make money out of services like car parking and letting out meeting rooms to non-members. But when they facilitate accounts and financial service tie-ups for members, or good offers from restaurants and so on, the entire benefit is passed on. Isharespace estimates a 5 per cent rise in revenue without investment.
Other solutions would be consolidation through takeovers, something which Amit Ramani of Awfis is not sanguine about. His view is that “service and investment standards are too variant for outright takeover of any space.” It may be better to create an office, if the location is right. Instaoffice has anyway focused largely on agreements where landlords get improved yields as capacity utilisations go up.
One good thing is that the business model is recognised as absolutely relevant and demand is going up.