15th August 2015, Prime Minister Mr. Narendra Modi announced the government’s new initiative, The Start-up India. It was aimed at making people self-reliant by tapping into the entrepreneurial spirit. This lead to the rise of a new type of office, known as co-working places. Co-working places rent out “seats” and provide chargeable amenities to small businesses that cannot afford to have permanent office space. The sector saw a huge boom and attracted many players of all sizes. A step beyond co-working emerged and it was called co-living, which are basically integrated office campuses for corporates where employees can work and live on the same campus. On 13th August 2020, an article in economics times read “Co-living companies turn their properties into integrated WFH campuses and quarantine centres”
May it be restraints placed by the local government or fear of physical contact, the fact is office spaces across India are more or less empty. Few players are taking advantage of this liquidity trap by adding distressed assets to their portfolio at a discount rate and on the revenue sharing model. Some of the players are making most of the opportunity by converting their spaces into much-needed quarantine centres! Companies are trying every trick in the book to attract customers. They are offering discounts, referral benefits, deferred payment options, etc. So co-living spaces are somehow managing to stay afloat by leveraging the “living” side of their offerings.
The same can not be said for co-working spaces. The future seems gloom for the players and there is a serious threat to their existence. The only way to survive is by staying ahead of the curve and making necessary changes to their offerings. Co-working spaces try to make most of their “space” by cramping in as many seats as possible. This might have to change as people may no longer enjoy being in this proximity. The difference between a normal office and co-working space is that every day the person occupying the seat changes (potentially)!
Imagine going to your office, you occupy the same seat every day that gives you a level of security. Now imagine going to a co-working space where you have no clue who sat on the same seat on the previous day, scary right? Imagine a regular office where you know your colleagues, you know the person occupying the adjacent seat, you are more or less sure about these health conditions or status of COVID tests. Now imagine yourself operating from a co-working seat and the person occupying the adjacent seat changes daily..again scary stuff!!
Co-working spaces have to address such issues by providing proper ventilation, better sanitary hygiene, reducing the physical contact etc. To build confidence the companies should replace the seat fabrics with fabrics that retain fewer germs or even use UV lights. But are those enough? How can one monitor a space where a huge chunk of the occupants changes frequently?
Now look at the economics, one one hand due to social distancing companies have fewer seats to offer and bear in mind co-working spaces’ revenue depend on the occupancy rates just like hotels’. Spacing out seats translates to lower-income as one cannot expect to raise the pricing of seats in such economic conditions. Moreover to the aforementioned changes, they need to do additional investment, which will further stress their liquidity. Most of the co-working players operate on leased premises hence have the obligations of monthly lease payments, failing to do so would attract harsh consequences. To match this cash flows the companies will take on additional debt and might end up in the debt trap, where they keep on financing debt with larger debts and higher interest thereby wiping out the assets.
All is not lost, on the positive side, a small business that originally operated from their own office space might no longer manage to do so and opt for co-working space which is definitely cheaper compared to fixed rental commitments. As they say, distress for one is an opportunity for another!
It will be interesting to see what the future holds for this industry. We believe that few of the smaller players will go bankrupt, some will liquidate their asset and there will be a phase of consolidation where the bigger players buys-out the smaller ones at discounted price. No industry can be wiped out that easily however the number of players surviving the turmoil can be scanty. What we will witness is plain vanilla Darwin Theory- “Survival of the Fittest”.
The Enigmatic Pen 