As the startup ecosystem matures, so do the workspaces that startups occupy. With coworking spaces becoming a primary choice for many new startups and tech companies, there are a number of emerging trends in this space, especially in the Indian market.
- Consolidation Through Mergers and Acquisitions
We have already seen a few acquisitions in this space like the well-publicized Oyo takeover of Innov8, or the less publicized OneCowork/iShareSpace. Smaller or city-specific players will either look to get acquired in the future or will be targets of operators looking to enter or strengthen presence in one market.
“Multi-city operators are likely to be targets of new entrants like Oyo, or even real-estate developers looking to get into the #futureofwork. Players with national footprint could see interest from overseas, as the Indian business environment with Modi as PM continues to be a favorable one in a global context,” Ashish Goenka, director, Redbrick Offices, told Inc42.
- Increase In the Share Of Large Enterprises
The share of enterprise in the shared workspace environment will continue to grow, as large companies embrace this trend for their flexible and increasingly, permanent workspace needs. Large corporates are approaching coworking companies for a fully-managed workspace for long-term deals, but they want access to all the shared amenities and the buzzing environment provided by a coworking space like ours. I think as the demand and supply trends shift towards large enterprises, quality of buildings, scarcity of Grade A inventory and quality of product will also start coming into prominence.
- Demand For Niche Spaces
As the independent one-unit coworking spaces look to survive in this changing industry, more and more niche coworking spaces will emerge focused on specific communities like women entrepreneurs, chefs, wellness, etc. Many coworking spaces already provide access to a lot of events and workshops focused on wellness, entrepreneurship. However, more niche and independent spaces will come up in the future, say experts. This will be a parallel rung of coworking focused on freelancers, small businesses, one-man startups, while the large scale coworking will trend increasingly towards scaling startups and enterprises.
- Customer Focus And Hospitality
One of the major reasons why coworking is growing leaps and bounds in India is that customers are no longer happy to work out of old dingy office spaces. Workspace is no longer just about space, it has to suit different work styles, it has to inspire, it has to have spaces to focus, to socialize and most importantly the experience.
“I think the experience of a customer, from the first interaction with a coworking brand, all the way through them acquiring and using a space – the experience of the brand has to be seamless and faultless. For example, at Redbrick we center the user experience around the concept of “freedom”. Users have the freedom to choose how they work, to design their own office space to the minutest of details, to grow, to shrink, to scale across cities and to enjoy great fresh food at the “Freedom Cafe”, our in-house cafe chain. I think the user experience will ultimately ensure success, and obviously whoever can deliver the best user experience at the most competitive cost will be the most successful,” Goenka added.
- Generation Z Amenities
There are multiple factors driving the demand for coworking spaces in India. Millennials and Gen Z workers, who currently represent over 46% of India’s workforce, will influence the working culture as India’s gig economy gathers steam. India has over 5,200 startups, strengthening its position as the third-largest startup ecosystem after China and the US, and, therefore, startups driven by millennials and even younger workers are likely to continue to take up seats in shared workplaces.
- Scale In Tier 1 Cities
Tier 1 cities will continue to experience the increasing number of shared workspaces. A growing number of coworking spaces in tier 2 cities like Indore, Kochi, Hyderabad, Ahmedabad, Rajkot, Udaipur, Jaipur, Kota, Surat, Pune and other cities have boosted the startup ecosystem with more to come in tier 3 cities. The first movers (operators) will have the advantage there. But, it only represents a fraction of coworking market even in the coming five years, according to coworking startup founders who spoke to us.
- Slow But Steady Shift To Tier 2, 3
Delhi-NCR, Mumbai, and Bengaluru were the most favored markets for co-working operators in India, taking charge for more than half of leasing in this section during January-March 2019. The trend is slowly moving to tier II and III cities. “The coworking giants are already setting up shop in tier 2 cities. With the burgeoning start-up culture and more of MNCs planning to widen their operations in tier 2 and tier 3 cities, these places definitely hold a radiant future for coworking spaces,” founder and CEO of Incuspaze Sanjay Choudhary told Inc42.
“Tier 1 cities are still not saturated but at the same time there is a huge potential in the tier 2 cities and these markets do offer a first mover’s advantage to the operators. Infrastructure is these cities are getting better day by day and so is the demand for flexible office space,” managing director of Avanta India Nakul Mathur told Inc42.
- Low Coworking Margin May Cause A Slowdown
“Coworking is really at early stages, the growth numbers we’re seeing just because everyone is trying to learn how it is. Whether it will become the future of office space is really hard to predict because of the challenges like churn of coworking members, monthly recurring operations cost, big boy eats the small one. We can say coworking will acquire around (10-20%) in office space segment,” Flexispaces founder Sandeep Singh told Inc42. Interestingly, enterprises are opting for these spaces because of their flexibility, as well as greater ease in setting up offices without many administrative hassles.“Only time will tell, we should also consider India has lowest coworking margins in the world and with smaller margins coworking models get riskier. Only the annual occupancy rates can ensure the success of coworking and it is improving.”
- Continuous Growth In Spite Of Still-Recovering Real Estate
We have already seen several large enterprises move into coworking spaces, but there is still a long way to go. According to estimates, coworking or managed offices make up only between 1%-3% of commercial real-estate inventory – but growth is almost doubling every year.
“The still recovering real estate market, and changing nature of work seems to have created a virtuous circle for coworking – and I think shared workspaces could easily grow to become at least 15%-20% of the total office market in years to come. So, one thing is for sure – the growth will continue. But, it is also true that there are over 300 coworking brands in India – and that might not be the same in the future. I see three major changes happening that will shape the coworking industry,” added Goenka.
Overall predictions say coworking spaces have a bright future in India. By 2025, it is expected that around 42% of the population in India will work in urban centers and hence the demand for office space will increase manifold. With economics playing on the mind of many new businesses, the demand for shared office space will grow tremendously in the next decade. “The model will mature with building owners and operators collaborating together running as a management contract or a revenue share, where the landlord brings in the property and the operator will bring in the expertise to build, market and operate the flexible office space,” concluded Mathur.