Covid crisis: Flexible workspace options to soar as firms expand capacity

Once the second coronavirus wave ebbs, co-working players believe their clients will be raring to increase the amount of flexible workspace they offer employees.

They are using the interregnum to expand and to negotiate cheaper real estate deals to add seating capacity.

Lockdowns during the second wave have pushed occupancy rates of co-working spaces down but co-working players believe this is a mere blip before a radical shift occurs.  

Amit Ramani, founder of Awfis, the third largest player in the space based on a study by JLL India last year, said: “We are seeing a fundamental change. Corporates are planning to increase their share of flexible workspace options from the current 5 per cent of their total office space to 12-14 per cent over the next year,” said Ramani.  

Other companies too, based on negotiations and talks with clients, expect the same demand. The second largest player, Mumbai-based Smartworks, has been receiving more inquiries than usual.

“We have seen, based on these inquiries, that our clients are looking at shifting about 50 per cent of their employees to flexible options, compared to 20 per cent in pre-covid times,” said Smartworks’ founder Neetish Sarda.

Awfis is negotiating real estate deals to increase seat capacity from 40,000 to 60,000, increase its locations from 70 to 120 centres and add three more cities to the dozen they are in right now. It helps that real estate prices have come down by 15-25 per cent.  

Smartworks intends to hit 110,000 seats in 2021 from the current 75,000.

Co-working companies say they saw amazing growth in the first quarter of 2021 when occupancies shot up to around 70 per cent,  until the second wave erupted.

As it subsides, they expect a staggered opening up of offices from July with occupancy going back to 30 per cent. However, occupancy  will not return to pre-second wave levels till the last quarter of this year.

Corporates are also considering new office space models. One is a ‘distributed office network’, namely, a hub-and-spoke model in a city comprising the corporate office and supplemented by three to four smaller workspaces in residential areas to house most employees.  This allows workers to be closer to home, with all the obvious benefits.

The other model is building workspaces in Tier 2 or Tier 3 cities where a substantial number of employees come from the metros to work. For instance, Smartworks is setting up capacity in Bhubaneshwar, Jaipur, Coimbatore, and Ahmedabad, among others.

“Many corporates have employees who have gone back home to Tier 2 or Tier 3 cities after work-from-home was allowed. A lot of our clients are asking for space in these cities so that they can work in an office environment,” said Sarda.

Pre-covid, Awfis had never thought of moving into small towns but it also plans to have 10-12 per cent of its seat capacity in smaller cities, totalling perhaps over 6,000 seats.

Their confidence emanates from the heady additions seen recently. A report by Colliers with FICCI on the future of workspace, estimated that over 11,800 seats have been leased by corporate occupiers in co-working spaces in the top six cities in the first quarter of this calendar year.  

Awfis saw a 2.2 X increase in in additional seats leased out in March, compared to pre-pandemic times.

Colliers estimates that flexible workspace operators will lease out over 3 million square feet of space this year - similar to 2020 until, that is, established operators sign up multiple large deals to manage new offices on behalf of corporate clients.

Arpit Mehrotra, managing director, office services (south India) for Colliers, said big tech companies are targeting about 10 per cent of their space to be flexible.

“They are also experimenting with whether co-working players can give them high quality service and workspace. That will be the test. Also, in 2021 lease agreements will end for a large amount of space of corporates and they too will be looking for flexible and shorter lease options,” said Mehrotra.  

The leases on over 80 million square feet of space will expire this year. Around 65 per cent of it comprises smaller spaces of less than 10,000 square feet.

It is this market that co-working players are looking to grab. Mehrotra said that many start-ups or smaller businesses whose business models are short term will want short tenure leases with fixed rate seating prices.

Even landlords, Mehrotra points out, are becoming flexible. “Earlier, the tenure for leases used to be 5-10 years. Now they are all right with 2-3 years. They are just like co-working companies willing to invest in the capex,” he said.