With the real estate sector steadily emerging from the ongoing pandemic, the disruptive segment of co-working spaces is expected to grow substantially. According to a recent report by Savills India leasing by co-working operators is expected to increase by 42 per cent in 2021. The statistics prove that the segment is not only surviving but reinventing to thrive during an economic slump.

Over the years, shared office space has emerged as a separate asset class that brings significant cost advantages to the occupiers. Though some co-working players have had to exit the market during the pandemic, and some others had to rework their portfolios, the future looks bright for the segment. As per the Savills report, co-working is set to gain greater significance post-COVID and have a share of 15 per cent in office leasing activity. Over 3,000 co-working centres across the country are likely to offer approximately 1.0 million desks by 2022.

A rate spectrum combined with hassle-free operational services on offer has been instrumental in increasing the affinity of mid-sized firms as well as large corporations towards co-working spaces.

While the popularity is rising, trends are shifting on the supply side as well. Many flex space operators have become more pragmatic in their space acquisition strategy post pandemic. They are no longer taking up spaces on flat rents, and there is a shift towards a revenue share model.

Landlords are realising that their vacant offices may take longer to lease out, and hence are adopting a more flexible approach. However, who will spend on the fit-outs is the question that remains unanswered. While the service providers who have already secured occupiers are more amenable to spend, for unconfirmed spaces, the expense ball is being tossed between the landlords and the operators.

Factors contributing to the rising demand for co-working spaces

Corporates today are no longer insisting that employees have to be physically in the office every day. They are open to people working anywhere and recognize that commuting is a problem. Some are even open to entirely adopting Work From Home culture. This opens a door for having a fungible facility which can reduce the commute time while also allowing employees to work in an office environment. Coming to the office also facilitates meetings, face to face discussions, and browsing ideas together. Hence, there is a demand for office spaces that offer flexibility and yet a work environment.

Another reason for rising demand is the need to conserve capital. With a V-shaped economic recovery gaining momentum, businesses are inevitably reworking their resources. In this context, spending capital on office interiors is not on top of the priority list. Therefore, they need a third party to step in and fund the office interiors. For most, a landlord is the best bet.

Co-working firms are re-working their strategies to address both these issues. They are opening up spaces in the locations that are in demand among the occupiers, setting up centres there that can optimistically have at least 40-50 per cent confirmed space take-up.

Another way in which co-working firms are helping address occupier issues is by offering customised solutions. Corporates get their office spaces designed as per their choice and do not need to spend any capital on them. Tenure of the occupation and quantum of investment are the determining factors for securing this customised solution.

Co-working spaces are also providing real estate infrastructure to facilitate social distancing as we emerge from the pandemic. It’s thus hard to overstate the importance of co-working spaces as the businesses shift to a more autonomous, more remote workforce.

The author is Managing Director-Business Solutions, Savills India

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