The office market in India is at an important inflection point now with the game-changing idea of co-working office spaces taking large strides this year. This idea is drastically changing the current way of working for all stakeholders including clients, developers / landlords, brokers etc. This idea will change the office market, as much as the e-commerce idea changed our retail experience forever.
E-commerce changed the way all physical retailers operated, constrained mall development projects, helped in growth of online payment platforms and benefited clients immensely. Today e-commerce idea has matured significantly and a lot of consolidation, takeovers, restructuring are underway. We also find a lot of e-commerce brands now setting up physical stores. The future of retail looks interesting with all these developments but one thing is for sure that customers will continue to benefit the most.
This same way the co-working idea will change the office space market for everybody and clients / occupants would be the biggest beneficiaries. A lot of doomsday predictions are being made about the viability of the co-working idea / longevity etc. but we have heard these things about all significant ideas. Co-working is here to stay and is likely to positively affect the office market in the following ways:
Great Leveller: Like is the case with anything the small guy is always the most ignored. Ideas like Twitter have worked as a great leveller by creating a level playing field for all big and small companies. In the office market the small / medium sized companies who take up anywhere between 1-50 seats are the most ignored lot. Nobody has any good space to offer them or wants to do fitouts for them. Eventually such clients end up in some residential house being used for office purposes or take up space in old office buildings or small nondescript buildings. The good buildings are always out of reach for small / medium sized companies. The co-working space brands offer such clients great choice of good buildings, locations, facilities & amenities as part of their space take-up.
Fitouts: Most of the transactions that happen in the market today are for fitted out space i.e. clients want landlords to provide the space with new fitouts or refurbishments to older fitouts. In the small / medium sized office space category landlords are generally reluctant to invest in fitouts. Co-working space comes with pre-fitted options. These brands spend anywhere between Rs. 1250-2500/- on carpet area basis, for their interior fitouts. These budgets are better than what small / medium sized companies would want to invest in any leased premises, hence works better for them.
Efficient use of space: The layout of co-working offices is more efficient than conventional offices. Co-working space brands consume 35-50 sft per workstation on carpet area basis and have common breakout areas, cafeterias, lounges, hangout areas etc all planned inside the space. The whole office is developed on modern design parameters and looks elegant. The conventional office market works on the basis of more than double the space parameters of co-working brands. The efficient use of space by co-working brands helps them offer better prices to their clients.
Common amenities / facilities: Co-working spaces come with a lot of common facilities / services plugged into the monthly cost like tea / coffee, internet, printouts etc. This all-inclusive price gives clients control over their budget and help in reducing costs. Everything is bought by the co-working brand in bulk and the price benefit passed to their occupants.
Admin: The entire office admin is taken care by the co-working staff. Clients needs to just concentrate on their business, HR and internal admin and procedures. A neat and clean office is ready for use when you walk-in to the office in the morning. Gone are the days when you need to ensure that your office boys need to be on time to open the office, cleaning staff should come daily, all vendors need to function their part in the smooth operation of your office. All these headaches are taken care off. A small company ends up dealing with atleast 10-15 vendors for their day to day requirements like the office supplies, internet, gas, cleaning materials, newspaper, courier, photocopy etc. All this coordination is taken care by the co-working space staff. Most of the above cost parameters are covered in the seat cost that clients pay.
Power / back-up facilities / common building maintenance: All these spaces come with power and 100% power back up facilities. The price that co-working brands offer include power / backup / maintenance (both internal and external). Clients get the best of the facilities at a reasonable fixed cost included in the seat cost.
Environment: The co-working environment is one bubbling with energy and enthusiasm. A lot of companies work together and exchange ideas, business, processes etc. The whole working culture tends to become cosmopolitan rather than remain staid and boring. The co-working brands also do a lot of common activities like mentoring sessions and lectures on all aspects of organisational matters. This helps in broadening ones thinking, getting new clients and networking.
Cost: This is the most interesting aspect of the co-working space category. Brands normally work on a per seat basis. Costs range from Rs. 7500/- to Rs. 20000/- per workstation per month. This cost normally includes the space, power, back-up, maintenance, tea / coffee, wifi, printouts, meeting room credits etc. For a normal office space there would be just one bill covering all operational aspects of the office space. Their are brands which strive to start offering seat price from Rs. 5000/-onwards. The difference in pricing is basically the cost of fitouts invested. The higher the basic cost for interiors that a brand incurs, higher would be per seat cost of the client. Cost per seat also depends on the rental cost being incurred by the co-working brand.
Commercial terms: These spaces come at very low or nil deposits. The lease tenures can be kept short with low or nil lock-ins. Clients who are not sure of how they will grow in future find these flexibilities invaluable for their businesses. For clients with 24/7 operations some co-working brands charge a minimal extra cost and others give a fixed number.
Large clients:
A lot of large clients hold empty space ready for deployment as and when they get business. With the advent of co-working space, their is a plethora of choices available to them across major cities to choose from a 100-1000 seater at a short notice. They may not be any need to now hold empty space. Currently co-working idea is restricted to metros but it is expected that it will start covering other important cities in the medium term.
Some co-working brands keep space as built-to-suit option for clients. Large companies are now beginning to see the potential of co-working and moving operations to these tailor made office spaces.
Some large companies have started to give their entire office space requirements to co-working brands to develop and run a specific office set-up for them.
These co-working space brands also help reducing rental costs for large clients.
Developers:
Conventional space planning assumptions are more than double that of the co-working models. With more efficient space models offered by co-working brands, overall supply may need to be curtailed in the future. In a 100,000 sft carpet area building, conventionally 1200-1400 employees can be accommodated. With the co-working model this number almost doubles. It is a myth that co-working means cramped office spaces. Efficient use of space is the corner stone of the design philosophy of co-working brands. They want to provide the best space and service to their clients who otherwise can move out on a moments notice.
Commercial terms: In conventional leasing, terms always favour the developers. With co-working models offering nil deposits, nil lock-ins, furnished space etc, all these will undergo change.
For large developers it makes sense to have co-working space in their projects so that for want of space / temporary space requirements their clients do not end up vacating their permanent spaces.
Co-working space offers space inclusive of power, back-up and maintenance. This would put pressure on conventional leasing to offer better terms in this regards.
Small / medium landlords: This is a segment which would see a lot of competition from co-working sales team's. These landlords may not be able to match the offers from co-working brands. We could see vacancy increasing in this category of office spaces which would put downward pressure on rentals.
Brokers: The conventional broker is most happy to do a straight lease with a fixed tenure, deposit, lock-in etc plugged in. This mundane model would change with a lot of co-working deals happening on revenue share basis with fitout investment coming in from landlords. The landlord would cease to be just a landlord and would become a partner in space planning and marketing. Since landlords would look at their rental models basis revenue shares, hence this will change how banks fund landlords. The revenue share model is already prevalent in the retail industry and is beginning to pick up volumes in the office space segment also. The broker needs to be keep themselves updated with all these changes and work more like a business associate and less as a transactional broker.
Overall the co-working is an idea whose time has come and clients benefit the most from it. It is safe to say that co-working will completely change the office market landscape in future. This is advent of a time wherein your landlord is becoming a service provider and would keep working hard on service levels to retain you as a tenant.
Written by CIRIL, September 30, 2017 | Comments Off on CO-WORKING SPACE THE NEW DISRUPTOR IN TOWN
CIRIL members are market leaders in their respective markets with an average 2 decades, commercial real estate market experience. Members have a transaction management portfolio of 30+ mn sft...
