10 Mar Will COVID-19 stop the bull run of Co-working industry?

In the pre-COVID era, the global co-working industry was expected to grow by 43% between 2019 and 2022. Also, the area under usage in the co-working industry in India was expected to rise to 13mn(sqft) by the end of the year 2020 from 2.5mn(sqft) in 2017. And, the number of spaces were expected to rise to 3500 from 800 in 2017.

With COVID-19 bringing the country to a near standstill, many sectors are being impacted – including the co-working sector. Most of the players from this stream are forced to close down their spaces temporarily.

The large portion of members in the co-working spaces are freelancers and start-ups, who have now terminated their contracts and are working from home, and will continue to do so. On the other hand, the corporates are downsizing their teams to achieve cost efficiency, as a result, the companies working in from co-working spaces would now opt for lesser seats in the private cabins.

The sector is likely to see subdued demand over next 3-6 months, with no or a little revenue, there will be a major strain on cash flows of the co-working operators along with the existing clients terminating their

contracts, many of the small players may not be able to sustain. The landlords play a very important role here and need to support the co-working spaces in this hard time. The co-working operators who would not be able to change themselves with the time, it would be difficult for them to continue their operations and will eventually shut-down. It would provide an opportunity for big players to acquire the small players at attractive valuations and expand their operations, once the economy starts recovering and demand for co-working rises again.

To come out of this pandemic and attract the clients to work from co-working spaces, Co-working operators are laying more emphasis on redesigning the spaces. Social distancing norms are all set to change the definition of workspace, the density of employees in a workspace will go down. The co-working operators are de-densifying their current offices, the open co-working spaces would likely be converted into the private spaces where employees are comfortable sitting with people they know and precautions are being taken. The number of people preferring to work from open working spaces will diminish and demand for private office spaces will rise.

As the co-working operators redesign their workspaces, the demand for virtual office would also rise, Virtual Office is a unique solution that helps you create a professional image for your business without booking an actual physical space. It means you acquire an address and communication capabilities, without any dedicated office set up. As most of these are cost-efficient solutions for any company there would be a surge in the demand for virtual offices.

Going forward, once the economy starts recovering and the companies getting back on a growth path, the demand for co-working spaces will rise. More companies would opt for the co-working spaces instead of the traditional office spaces owing to the flexibility and cost benefits, these spaces offer. Many of the companies are considering splitting their office into two or more locations to minimize future risk and also reduce dependency on one office, The companies would opt for multiple locations co-working spaces, this would help the companies maintain social distancing norms and the employees would be working from multiple spaces within a city. Companies will prepare themselves for diversified infrastructure, there would be a focus on comprehensive workspaces – work from home, work from the office and working from a flexible space near home.

Seeing the potential in Co-working spaces, in COVID times, Investors Clinic, a real estate consultancy company has signed a 50:50 joint venture with Kocreate to enter the co-working space. The company plans to open 5,000 new seats in Delhi-NCR.

To conclude, the lack of new members, combined with the increase in cancellations and their national attrition, is putting a major strain on the cash flow for these companies that already operate at a fairly low margin and many of the small to mid-size operators would find it difficult to sustain their operations. But, In the long run, the co-working sector will be among the few industries that will see a V-shape recovery after the COVID-19 threat is over. More companies would be opting for co-working spaces along with expansion in Tier 2 cities would fuel the demand for co-working spaces. So, the key for co-working providers is to manage resources optimally and surviving the next few months. Once the COVID 19 cases are under control and the economy starts opening gradually, we expect an increase in demand for co-working spaces with new designs and social distancing norms being enacted in workspaces.