Before the pandemic set in, posh neighborhoods in India’s Silicon Valley, Bengaluru, national capital New Delhi, and financial capital Mumbai, were bustling with technology startups galore. Some were in rented spaces, others had found spacious cubicles in one of the many co-working spaces that have mushroomed in the city.
Now these once-bustling buildings wear a somber look. Big placards on their gates announce they have office spaces ready to be rented out, and yet, there seem to be no takers.
Indian cities such as Bengaluru, New Delhi, Chennai, Hyderabad, and Mumbai had witnessed the rise of a slew of these co-working spaces over the last few years. But the COVID-19 crisis has brought things to a standstill for many of these startups offering shared space.
Even before India imposed a nation-wide lockdown in March, small startups who had a handful of employees opted to work from home. Much of India has begun to slowly go back to their offices, but not to the co-working spaces. The fear of catching the infamous virus in a shared, closed space is translating into huge losses for these co-working spaces.
Bengaluru-based startup SuprDaily, for instance, which was working out of co-working company BHive Workspace, opted for a work-from-home model in March. It “doesn’t plan to go back to office till the pandemic is over,” says Siddharth Naga, Head- People & Culture, SuprDaily.
SuprDaily is one of the many startups that has adopted this approach.
Shesh Palikar, CEO and co-founder of BHive Workspace, which has nine offices in Bengaluru, told KrASIA that their business has fallen drastically. It’s come down to 60% of the original revenue. Industry experts say that due to non-renewal of contracts by smaller companies, the total business of co-working spaces has fallen by 40% since March.
“The immediate disruptions were observed in the form of client exits, non-renewals, and delayed payments. This has caused contractual occupancy of the industry to fall between 40-50% of what we saw in pre-COVID-19 times,” said a spokesperson at Indian Workspace Association (IWA).
According to people in the industry, small co-working operators would be the first in the line to shut shop as bigger companies would be able to weather the storm due to their pan-India presence.
According to a Knight Frank India report, due to small operators shutting shop, there’d be 3.2 million square feet unoccupied space left in the country.
Noida-based LetsWork is one of the several such small co-working startups which has been out of business for the past few months. “It was mid-March when the first lockdown was announced and we are completely shut since then,” says Abhishek Gupta, CEO and founder at LetsWork.
He added that whether the rented property is operational or not, property rent meter is running. This has added a huge burden on smaller co-working startups. LetsWork was paying INR 500,000 (USD 6,827) as monthly rent before the lockdown, but now it has been reduced to half. Gupta is planning to re-open the space from December this year. He said more than 30 startups were using LetsWork as their office.
LetsWork will be one of the few smaller co-working startups which successfully survived during this crisis, but a majority of small operators are likely to face shutdowns.
Sanjay Dangi, founder, Mentor Capital which invests in multiple sectors, including real estate projects and lending businesses, said smaller players, which have about 25% of overall co-working area in top eight cities including Delhi, Mumbai, Bengaluru, Gurugram and others, will face a bigger challenge. Such co-working spaces or those without a geographical spread within large metropolis or pan-India presence might find it difficult to survive.
Dangi believes a huge chunk of the co-working space demand in India was driven by startups, pegged at about 50,000 in 2018.
Survival of the fittest
However, not everyone believes smaller co-working startups would shut down. Aditya Verma, founder of The Office Pass (TOP), said the survival is not dependent on the size of a company but its business model.
He emphasized that if you have got your business model aligned since day one, you can sail through this crisis. The Office Pass has executed a crisis-safe business model which it claims will help it survive the pandemic.
“The Office Pass was conceptualized as a capital light business since the time of inception. This meant that most of CAPEX associated with scaling the co-working business will not be done by us but by our partners like property owners, real estate investors or financiers. This model is extremely hard to execute as we have to convince others to take financial risk on our behalf,” explained Verma.
Verma claimed, The Office Pass was EBITDA positive late last year. “TOP closed last financial year with a revenue growth of 164%. The growth in previous years was even higher.” He said it’d be safe to assume that most operators’ annual revenue grew by 60-80% before COVID-19.
He believes co-working companies should expand their client base and not limit themselves to just working with startups. This will ensure that even if startups shut down due to the slowdown during the pandemic they still have other larger clients working out of their office.
Despite the fall in business and loss suffered by co-working companies, experts say that things are gradually changing as companies are rejoining these shared spaces.
Studio Amaavi, an interior architect company that worked out of their own office before the pandemic had to work from home due to the lockdown. However, in just three months of working from home the 15-member team joined BHive Workspace in June, as they started noting a lot of inefficiencies in the work. Nihaal Moosa, co-founder at Studio Amaavi, said the kind of work they deal in requires hands-on team coordination which was not feasible while working from home. Besides, the reason to move from a dedicated company’s office to a co-working space was to have a flexible workspace option.
“Flexible workspace operators have also understood that consumers will now want options closer to home which has meant a rethink of how our teams are distributed to meet the consumer’s preference for distributed offices,” IWA said.
Industry experts say that not just small companies, but big corporations will also prefer co-working spaces than having a centralized office.
Industry rushes to capture clients
Automaker Toyota Kirloskar Motor (TKM) recently relocated its marketing teams from an upmarket neighborhood in Bengaluru to low-rental office facilities including co-working spaces.
“Like Toyota, other corporations are also looking to shift to co-working spaces. Recently, we have seen a rise in queries from corporate clients and are actively looking forward to convert queries into deals,” said BHive’s Palikar.
He added that he is also offering discounts between 20 and 30% for a lock-in period of one year. He believes that with their shift in approach from startups to corporations, co-working spaces will be able to achieve the growth of pre-COVID-19 times.
“I believe that co-working spaces will find new clients in large corporations. The risk of commuting to a central office in a large metropolitan city like Mumbai is leading companies opt for local offices within key suburbs where they have a big pool of their employees coming from. So, I already see the shift towards co-working spaces which will further grow in future,” said Dangi.
Observing the gradual return of companies to offices, co-working spaces are also ensuring the safety of clients.
“Flexible workspace companies have proactively amped up safety and hygiene measures to ensure 100% safety for their members within the premises. They are also restructuring the entire setup to follow social distancing norms with a prescribed distance between work desks in work areas as well as meeting rooms, cafeteria, collaboration areas, among other spaces,” IWA said.