Why it Make Sense for Real Estate to Join Hands with Co-working Industry?

September 8, 2017

An unfamiliar concept 10 years ago and poorly understood
even now, co-working is one of the fastest-growing sectors of the commercial real estate market. In the few years since the concept began to take hold, the industry has grown to include more than 11,000 shared workspaces around the globe. While major U.S. and U.K. co-working markets are beginning to show signs of maturity, the demand in second-tier cities and emerging markets is fuelling double- and even triple-digit growth for co-working centres.

Though its growth has been profound, the shared workspace market—including serviced offices, co-working spaces, incubators, accelerators and more—represents less than 1% of the world’s office space. Nevertheless, co-working and the broader category of flexible workplaces are important trends worthy of owner, investor and occupier attention.

In the early days of co-working, these trendy, collegial spaces primarily housed entrepreneurs, small businesses and freelancers. But as awareness of this new workplace alternative has grown,
so has the attention of corporate occupiers. Driven by demand factors, including new-generation work styles and the desire for real estate portfolio agility, C-suite executives from human resources, operations, real estate and finance are increasingly interested in how co-working affects their work practices and policies—and how they need to design, manage and operate their workplaces.

On the supply side, co-working offers landlords and owners with excess space a new type of occupant that can reinvigorate older properties. Even hotel chains, retailers, libraries and restaurants are getting in on the action. It is evident that the real estate landscape is changing – a traditional approach to strategy, decision-making and operations is no longer sufficient. In fact, stability is now an illusion, or worse, a sign of stagnation. To thrive in this period of disruption and uncertainty, taking a visionary approach is a must.

Many firms have implemented strategies ranging from space rationalization, agile seating, and work-from-home options to implement an organization-wide change. Cost savings should not be the only driver for workspace change, however, and overall productivity and employee effectiveness, the great opportunities of networking with different professionals, along with generational shifts, should all be taken into consideration.

Either way, co-working does not seem to be decreasing its share of the commercial real estate market. There are multiple requirements for new co-working spaces in all the tier 1 and tier 2 cities of India. The rise of nimble, technology-focused businesses in India is quite apparent. Driven by a millennial workforce that is set to make up 75% of the total global labor force by 2025, companies are adapting to the changing demographics. Millennials crave a healthy work-life balance and are indifferent to traditional corporate structure. So, the flexibility and cohesiveness of co-working spaces is an obvious solution to startups that can afford it.

The total number of square feet occupied by co-working space operators is nearing 1 million in the metropolitans on India. If current trends continue, it is likely to continue on that upward trajectory. But how will landlords react to this new way of leasing?

Many landlords have decided to cash in on the co-working trend, leasing directly to existing co-working operators. On the other hand, many landlords have remained slow to adapt to the changing commercial real estate landscape, while individuals, corporations, and start-ups alike are embracing this market trend. Yet, many office landlords remain leery of leasing to these seemingly risky co-working operators.

With the apparent success of companies like WeWork, office landlords are opening up to the idea of leasing out space for start-ups and others to share. The financial feasibility of these companies is up for debate, but for now, they seem to have found a way to make money by leasing space by the hour sometimes as opposed to by the month. With changing technology and demographics, the workplace is changing before our very eyes.

Whatever way you slice it, co-working and community living are not going away. As Millennials become a larger portion of the population, it would make sense to see this co-working concept take off. By installing a creative environment, co-working spaces do more with less. Companies can then thrive, knowing they have the flexibility they need to focus on their business.

In National Capital Region of India, the co-working concept is right at home with the bevy of technology startups in the area. Whether it remains on its upward trajectory for the foreseeable future is anyone’s guess, however, looking at it today, it shows little signs of slowing down.

So, it is evident from the recent trends in the co-working spaces and large corporates entering the arena to acquire more and more of real estate to turn it into co-working spaces and offer to the millenials, so it really makes sense for the real estate owners to look into this never failing business model to make money from their properties in form of co-working.

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