The smaller co-working space operators are expected to find it very difficult to weather the COVID-19 storm, according to the ‘Co-working: Surviving COVID-19’ report released by Knight Frank India, the global real estate consultancy. Approximately 25%, that is, 6.4 mn sq-ft of the total 25.45 mn sq-ft co-working stock in the top eight cities is operated by small players. Knight Frank India estimates that at least half of this stock amounting to 3.2 mn sq-ft will be vacated by their operators within 2020 as these small operators fade away. Low occupancy and increasing cost are expected to make co-working operations unviable for fringe players, and would therefore force smaller players to vacate their low performing offices.
On the positive side, the uncertain economic environment will compel more companies to look for flexible options that can adapt to and fulfil their changing requirements, without capital expenses and shorter lease terms. Knight Frank believes that while the industry is expected to see significant exit of start-up tenants and smaller occupiers as they cut on costs in this crisis scenario, the demand from large enterprises is expected to grow over the medium to long-term. The increasing need for flexibility and the competitive advantage of being a workspace expert will sustain the industry over the long term.
While there are over 250 coworking players operational in India today, an estimated 75-80% of the market in the top eight cities is dominated by the top 10 players. The annual space taken up by coworking players has nearly quadrupled since 2017 to a little over eight mn sq-ft in 2019.
Gross revenues of the co-working business in India have more than doubled since 2017 to an estimated Rs 34 bn or $ 470 mn in 2019. The top eight cities of India contained an estimated 25.45 mn sq-ft of co-working stock at the end of 2019, which is about 3.4% of the total office stock. Various estimates place the same metric for the US at a much lower 1.5-2%. In the long term, Knight Frank India expects that the need for a flexible office format will result in its share growing steadily, globally and in India as well.
The coworking engine was fuelled by private equity investors looking to cash in on a high growth opportunity. This growth capital spurred an expansion spree that saw co-working operators claiming nearly 13% of the total office space transacted during 2019. Close to $ 110 mn of private equity investments were made in co-working businesses in 2019. Although this amounts to just under 4% of the total private equity investments seen in the Indian office sector as a whole, investments in co-working businesses have grown over 71% YoY in 2019. Awfis, GoWork, BHIVE, Workspace, 91springboard, Indiqube and Innov8 were among the prominent recipients of private equity infusions.
Shishir Baijal, chairman & managing director, Knight Frank India, said, “The Indian co-working business, much like other sectors, will feel the impact of the COVID-19 pandemic with the fringe players likely to make an exit. This will be a period of shake-out for this segment, where we expect larger players with a greater weightage of enterprise tenants to endure. Though the immediate fallout of tenant exits and revenue disruptions will be challenging, a renewed focus on tenant safety and the still attractive premise of flexibility, especially in light of the current economic uncertainty, should ensure the sustenance and growth of the co-working industry in the long-term.”
