Flexible office formats to sustain demand for Co-working segment in long term: Knight Frank India
Parul June 20, 2020
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The co-working space industry is expected to see significant exit of start-up tenants and smaller occupiers as they cut on costs in COVID-19 crisis but demand from large enterprises is expected to grow over the medium to long-term, according to a new study by Knight Frank India released on Friday.
About 25 per cent or 6.4 million square feet of the total 25.45 million square feet co-working stock in top eight cities is operated by small players. Knight Frank India estimates that at least half of this stock amounting to 3.2 million square feet will be vacated by their operators within 2020 as these small operators fade away.
On the positive side, the uncertain economic environment will compel more companies to look for flexible options that can adapt to and fulfill their changing requirements without capital expenses and shorter lease terms.
Knight Frank said 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,” said the report.
While there are over 250 co-working players operational in India, an estimated 75 to 80 per cent of the market in top eight cities is dominated by the top 10 players. The annual space taken up by co-working players has nearly quadrupled since 2017 to a little over 8 million square feet (0.75 million square feet in 2019).
Gross revenues of the co-working business in India have more than doubled since 2017 to an estimated Rs 3,400 crore. The top eight cities of India contained an estimated 25.45 million square feet of co-working stock at the end of 2019, which is about 3.4 per cent of the total office stock.
Bengaluru and the NCR region have been major markets for flexible office space due to the proliferation of start-ups and a greater acceptance of the flexible workspace format by resident companies in the technology sector.
The co-working 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 per cent of the total office space transacted during 2019.
Close to 110 million dollars of private equity investments were made in co-working businesses in 2019. Although this amounts to just under 4 per cent of the total private equity investments seen in the Indian office sector as a whole, investments in co-working businesses have grown over 71 per cent year-on-year in 2019.
Awfis, GoWork, BHIVE, Workspace, 91springboard, Indiqube and Innov8 were among the prominent recipients of private equity infusions.
“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 the light of the current economic uncertainty — should ensure that sustenance and growth of the co-working industry in the long-term,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.