Coworking: Top trends to shape the segment in 2020

According to Anuj Puri, chairman, Anarock Property Consultants, with hip working spaces high on technology, experience and sociability, coworking is no longer just the go-to option for new-age startups and entrepreneurs - it has now expanded its reach to mainstream corporates, as well. Even as major coworking players increased their footprint across the country, institutional funding kept the momentum going. 2019 also witnessed a growing wave of consolidation in the sector, in the form of mergers and acquisitions, he added.

Despite the WeWork debacle in the US dominating headlines and raising questions about the future of the coworking business, the segment has emerged as a viable asset class for landlords and operators in India. The coworking market has grown by leaps and bounds and is a significant factor in the strategy for occupiers, Puri said.

On the scope of the domestic coworking business this year, Puri does a “crystal-ball gazing” to identify the trendsthat will push this real estate segment. According to him, the following trends are coming to the fore:

As we head into a brand-new decade, millennials are set to form 50% of the global workforce by 2020. This burgeoning and influential segment has been at the core of the coworking story in India and will continue to drive demand for such spaces in the country. India happens to be the world’s youngest startup nation with >70% founders less than 35 years of age. According to Nasscom, the end of 2020 will see India have more than 10,500 startups, ranking third behind the US and the UK. As cities like Bengaluru, Gurugram, Pune and Hyderabad witness the rise of the entrepreneurial wave, the demand for coworking spaces is only set to grow in the coming years.

Puri reiterates that the segment is no longer driven solely by startups, millennials and SMEs. “It now caters to mainstream corporates and large enterprises as well (global tech-giant Google leased office space with coworking operator Simpli Work in Gurugram to expand its operations). Even banks and telecom companies are keen on their teams to operate away from headquarters and closer to entrepreneurs,” he noted.

In 2020, more large companies will opt for flexible coworking spaces for their short-term expansion plans. Supply has been growing with demand – towards 2018-end, the total supply of flexibleworkspaces was anywhere between 7 - 7.5 mn sqft area and crossed 12 mn sqftby the end of 2019.

Noting that the domestic coworking segment is currently populated by players of varying size and scale, Puri said, “There are currently over 200 players operating across the country. The top seven players in this space alone have more than 350 centres across multiple cities in the country. These players include Cowrks, WeWork India, Awfis, Regus, Smartworks, 91springboard and OYO’sWorkspaces. This number is likely to double or even treble in the next two years, given the rate at which these leading players actively leased spaces across major cities in 2019.”

Coworking spaces are fundamentally capital-intensive and revolve around multiple variables such as design, technology, and customer service. For a business that thrives on economies of scale, the backing of institutional capital can be the crucial differentiator. Institutional funding to the coworking space has gradually evolved and grown. While in 2017, most of the deals were driven by angel investors and only a few PE players, 2018 saw the maximum deals driven by large PE players and venture capitalists. This trend continued in 2019, which witnessed strong investor confidence in India’s co-working story with major deals being inked.

Coworking spaces come in all sizes and variants (even a basement office with about a dozen seats technically qualifies as a coworking space) but not every coworking business is profitable. The success of the business model hinges on the operator’s capacity to scale up, and not every company may have the financial bandwidth or resources to do that. Survival in such a competitive environment will be a challenge for smaller players, and we will see more mergers and acquisitions in 2020.

“There’s no doubt that coworking creates an inventive and stimulating work environment, but it also comes with certain risks and conditions. Such a shared format may not be suitable for companies dealing with high volumes of confidential data. It is up to operators to take steps to minimise such risks and scale up cyber security within shared working spaces. The shared work culture also translates into loss of privacy – a major concern for several companies,” Puri said.

Urging coworking players to innovate and re-strategise their business models, to harness their potential and grow at a fast clip, Puri said, “This year is likely to see the rise of ownership model developed in partnership with landowners, developers or the space providers. There’s no doubt about the scope of coworking sector and its potential for growth in India, but it will take a few more years for co-working to become India’s most-preferred work ecosystem.”