Introduction

Coworking started as a trivial trend but over the years, it has transformed into a mainstream movement. Be it coworking spaces for real estate firms, MNCs, start-ups, freelancers, entrepreneurs, or creative people, the rising demand for such plug-and-play offices has significantly impacted everyone involved in India’s commercial real estate industry.

Though the start of the COVID-19 pandemic had an adverse effect on the coworking spaces market, the industry was quick to innovate, reinvent, and stay operational to tide over the impact to some extent. This was reflected in a 2020 report by Savills India, which anticipated leasing by co-working operators to rise by 42% in 2021. The report also mentioned almost one million desks would be on offer by 3000+ coworking centres across the country by 2022.

Let’s take a closer look to decode the impact of coworking spaces on commercial real estate in India.

How is coworking spaces impacting the real estate business?

When you consider the benefits of coworking spaces for real estate, you’ll have to take into account how the industry’s key players are impacted.

Landlords

In the past, getting business tenants under the traditional rental or lease agreements meant a long waiting period for the landlords during which their commercial spaces would sit empty and fetch them no revenue. The reasons for these were varied but the prime one was the huge upfront costs the tenants had to shell out.

From renovating the space to fit their needs to investing in furnishing and infrastructure, a huge capital was often required. And when you add to these some other costs like the down payment as well as the fees of lawyers and real estate agents, the amount of money needed to start a business would be substantial, which not many were inclined to shell unless they had shopped around a bit and compared the costs. 

Another problem with the traditional model of renting/leasing was the uncertainty of getting the rent on time, month after month. When renting to a solitary company or single user, how successfully it ran its business would be closely related to the landlords’ getting their rents.

In case the tenant’s business failed to take off, or couldn’t make the desired profits, or decided to move elsewhere, the landlord would have to stare at the premises lying vacant until a comparable offer was made. Such uncertainties are reduced a lot by coworking spaces. Since these shared offices are used by multiple users, which could include companies, start-ups, and freelancers, among others, the success of the space doesn’t depend on any one of these members.

Additionally, since these spaces are fully equipped and often don’t require a hefty down payment, companies or start-ups looking for a long-term office space won’t need to arrange a hefty capital to start work. Another advantage of such spaces is their ease of scalability. While a growing business can easily add more seats and members to the team, a struggling one can downgrade to cut costs without having to move out of the premises.

Thus, for both landlords with coworking spaces and individuals/companies looking for flexible and economic shared office spaces, coworking is a win-win solution.

Banks and Other Investors

For traditional financial institutions like banks and other lenders or angel investors and venture capitalists who lend or put their money to get a coworking space up and running, the risks associated with recovering most of their investment are a key decisive factor.

Spaces having single users or single-purpose factories and office spaces are riskier because their success depends on the success or failure of that single user.

Thus, if that user fails or the business is declared bankrupt or insolvent, the investors will have to take over the property and find another user who would be willing to set shop there. This could be a tedious and slow process, during which there won’t be any way to recover the amount that has already been invested. But the scenario is different for a coworking space.

Since its success doesn’t depend on a single user, the investors or lenders will stand a better chance of recovering their money. Though unlikely, even if a coworking space becomes empty, it would be much faster and easier to fill by attracting new members than an office building or factory built to accommodate a lone user. These are the reasons that drive many lenders and investors to pump their money into Indian coworking spaces for real estate.

Real Estate Agents

Initially, many real estate agents had a hostile attitude toward coworking spaces as they thought such plug-and-play offices based primarily on a pay-as-you-go subscription model would take over the traditional commercial market. But as they warmed up to the new concept, they realised the advantages of coworking spaces for real estate and how such spaces offered them another avenue to profit from.

While some continued to work as agents and help find start-ups, freelancers, and enterprises suitable shared office spaces, others with long-term plans worked to build relationships with these tenants. These agents believed once these members are ready to move out from the shared office spaces and find their own premises, they could cash in on the opportunity by helping them find the right property. 

The Legal Aspect

In India, there aren’t any leasing laws or subletting clauses yet that have been formulated exclusively to meet the changing landscape of coworking spaces. As a result, the laws and regulations applicable to tenants and landlords also apply to these spaces though the parties involved could tweak them to some extent within acceptable limits.

However, the lack of clarity could trigger legal problems when leasing coworking spaces with respect to property rights, liability issues, and who’ll bear the unexpected costs incurred, if any. Sometimes, membership arrangements or licensing used by landlords for the users of their coworking spaces could reduce the former’s control over the latter. Again, having extremely restricted leasing arrangements by landlords could make it difficult for the coworking space to start off.

Final words

Despite the substantial impact of the coworking spaces industry on India's real estate sector, it's yet to get financial and other support from the government or have clear laws and regulations to guide it. Additionally, it needs to be recognised under special schemes, such as REIT (real estate investment trust), and be given tax benefits to grow in the post-COVID 19 era. These are important steps that would help improve the benefits of India’s coworking spa