Co-working boom in India may trigger consolidation, wipe out smaller firms

Photo: Mint

Co-working spaces in India are becoming crowded with at least 350 operators vying for clients, leading to fears that a consolidation will lead to the shuttering of many companies.

Shared office spaces are still coming up, but according to experts, a handful of large operators will scale up across the country and edge out smaller firms.

The co-working sector took up 13% of the total transacted office space between January and June, as activity-based working and community spaces become the norm for modern day office occupiers seeking a collaborative ecosystem, said a Knight Frank India report.

Abhishek Goenka, chief financial officer, at Bengaluru-based Cowrks, said, from the current levels, in five years, 40-50% of all new leasing of office space would be by co-working firms. “But building co-working spaces is not easy, and involves design, technology, community building and customer service. Consolidation is imminent because the model works on building scale, and that’s the key way for the business to grow.” Cowrks, a unit of realty firm RMZ Corp., has 14,000 seats and plans to double that by March 2019.

“A major number of players came in last year. But most have also shut shop. A lot of people thought it would be an easy business to be in, but it is not. It needs a strong backbone to scale up and smaller players don’t have the bandwidth for that,” said Harsh Lambah, country head (India), International Workplace Group (IWG).

IWG currently operates 120 shared offices, of which 114 are business centres under the ‘Regus’ brand, and six are co-working offices under the ‘Spaces’ brand. The plan is to double the network over 36-48 months. Lambah says consolidation will happen through acquisitions by a larger firm, as players start exiting because they are unable to sustain.

Karan Virwani, India head, WeWork, agrees, adding that consolidation will be triggered by various factors. “This is a capital-intensive business and is customer-centric. Everyone thinks it’s glamorous, but as an operator, it’s not easy. There is retail and hospitality at its core and there are no rules how it should be done, so one is trying new things, some of which may not work.”

Flexibility to scale up and down, ease of transaction, no hassle of fit-outs or dealing with multiple vendors, and reduced legal and compliance risks, are some of the factors that have worked in favour of co-working spaces.

Bengaluru is the largest market for flexible workspace in India and has the largest share of technology start-ups, says a Colliers International report.

Viral Desai, national director-occupier solutions group, Knight Frank India, says with so much competition, scale, financial ability and customer service will really separate the serious operators.

India’s traditional office sector has witnessed consolidation in recent years, where a handful of 5-6 developers control the majority of the market. Co-working could follow the same steps.

“Not just start-ups, demand for shared office space is also coming from large companies. The biggest challenge for operators is to have a scalable model. One needs to understand how to provide the right customer experience and standardize the experience,” said Nitesh Sarda, founder, SmartWorks, adding that while many mom-and-pop co-working offices are coming up, one needs to have a brand to make it big and sustainable.

This article was first published on livemint.com

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.