Even though the growth story has been incredible, the shared workspace market (including serviced offices, co-working spaces, incubators, accelerators etc.) represent less than 1% of the total world’s office space.

A rather unfamiliar concept few years ago, co-working is now one of the fastest-growing sectors of the CRE industry globally. In the past 2-3 years, the industry has not only become a buzzword with all conventional office users considering this as a viable alternative to owning/operating their own workspaces but also grown tremendously to include more than 11,000 shared workspaces around the globe with more than 300 in India alone.
While major co-working markets in U.S. and U.K. have moved towards maturity, the demand in Tier-II cities and Emerging markets is gearing towards aggressive growth. Even though the growth story has been incredible, the shared workspace market (including serviced offices, co-working spaces, incubators, accelerators etc.) represent less than 1% of the total world’s office space. (Source: JLL) This makes it important to understand how co-working will play a pivotal role in determining the future of supply-demand dynamics within serviced office industry.

Demand Side Driver: Transforming the sub-standard office space into quality workspaces for SMEs

With the evolution in workstyle owing to economic, demographic, technological and societal influences, work has gradually become more and more flexible and not tethered to a specific place. The biggest driver is the demand for quality office spaces for SMEs. Currently, the total cost of owning a Grade A office infrastructure is very high as well as the floor plates available are much larger than the actual requirement. As a result, most SMEs end up occupying Tier II building with Grade C infrastructure.

This immense latent demand is being tapped by co-working players who are more focussed towards providing a value-driven solution customized for Indian business ecosystem. The current MSME employee base is 128mn and expected to grow to 170mn by CY 2022 (Source: Nasscom). Even if 35% of this base requires office space within Top 10 cities in India, the opportunity for co-working space providers is massive.

Supply Side Driver: Providing solution to unorganized & fragmented office supply

The Indian Real Estate market is approximately 1 bn square feet and is fragmented across Grade A metro – 48%, Grade B metro – 19%, Grade A,B non-metro – 12% and unorganized -21% (Source: Emkay). Real estate has always been the most sought-after investment opportunity since independence and therefore a large portion of commercial real estate ownership is fragmented and is with HNI’s and smaller players. For these space owners real estate is a non-core business and they primarily rely on capital appreciation.

Over the last 10 years once the value of asset stopped appreciating, property taxes and maintenance started to hurt space owners. This problem is unique to India and few emerging markets. Globally, in any developed market, larger developers, asset management companies & property management companies own 70%-90% of the commercial real estate.

In India, the space owners belonging to unorganized segment face problems like 1) low yields 2) inability to develop & market properties resulting in vacancies 3) no client touch point for continued engagement and no retention strategy 4) hassles in property management and 5) no risk management against cyclical downturns 6) limited ability to straight sell the larger floor plate. Because of fragmented nature, these opportunities are also not well mapped by professional property management and RE consulting firms.

The real opportunity for co-working space providers lies in aggregating this supply and bringing this closer to demand. Partnership with co-working players results in a win-win scenario for space owners. Co-working players get to acquire supply in most efficient way which makes the model risk-averse and asset-light to a large extent. For space owners they not only get occupancy for their space but also an opportunity to share upside of the co-working business model.

Visit the below link to read the published article:

https://realty.economictimes.indiatimes.com/realty-check/co-working-the-indian-demand-supply-dynamics/3289