How Covid-19 can Affect the CoWorking Industry in India

This is a guest article by Ms. Anita Sharma who used to dabble with acids and alkali, Yes a a chemistry grad! Now, she help companies market themselves on the internet with her marketing skills. She runs an digital marketing agency, Searchmetry in Kolkata.

Covid-19, which has shaken the whole world has brought all countries at halt. This highly contagious disease is spreading so fast that Indian Government has ordered 1.3 billion residents to stay home. Initially government declared lockdown of 21 days on 24th March,2020 and then extended lockdown more for two times. In this lockdown period, all malls, theaters, companies, shops, restaurants, manufacturing units are shut. This will affect businesses and economy badly.

Covid-19 has proved to be the black swan event of black swan events. With entire countries under complete lockdown, healthcare systems on the brink of collapse, and a cure and/or a vaccine nowhere in sight, the engines of industry have ground to a complete halt in every country, India included. Every person has questions regarding after lockdown effects on industry, people, lifestyle.

Many questions are there for coworking industry too like

• Will covid-19 be a nail in the coffin of the coworking industry in India?
• Or will it actually push more people towards coworking?
• Will the sector be permanently affected? For better or for worse?
• How will this affect the coworking industry in India?
• Will there be a permanent effect on the industry?
• Or will things return to pre-covid conditions once the pandemic is brought under control?
• If there is a permanent effect, will it be positive, or negative?

Let’s take a look.

The idea behind a coworking space

Every company is different. Their requirements, and their way of working is different.

However, most workspaces share infrastructural requirements, like:

• A good internet connection.
• Phone lines.
• A stable electric supply.
• A conference room.
• Amenities like washroom, basic snacks and beverages, and so on.

There are two issues with an individual company arranging these for itself:

• It’s not the core function of the company; the time invested in arranging them could have been used more productively.
• Some of the facilities, like the conference room, will not be constantly used by the company, leading to excess capacity.

Enter the co-working concept

Enter a company whose core function is to acquire spaces, convert them into workspaces (by appropriate interior design, arranging for the infrastructure, etc), and offer other companies access to this working space.

The issue of spare capacity is addressed by devising a shared access mechanism; in other words, companies A and B both use the same conference room, at different times.

Remember this ‘shared access’ concept - we will return to it in a while.

Also read: All You Need to Know about CoWorking Spaces in India

The Financial Model

• Typically, the space acquisition will have to be done long term; in other words, to build a viable coworking business, lease/rent agreements have to be long term.
• Some staffing - especially in the fields of maintenance, logistics, and so on - would also have to be hired on a salaried basis.
• On the other hand, companies who want to rent desks or rooms will look for flexible arrangements, to fit their financial situation.

This means that there will almost inevitably be a mismatch between the spending and revenue of a coworking company - long term, fixed costs will have to be funded with volatile short term cash inflow.

How does covid-19 affect this, in general?

Covid-19 can have a number of effects on this business model:

The lockdown

Typically, coworking spaces would be found in financial districts, within metropolitan areas. Typically, these also have been found to be ‘hotspots’ where the virus has been spreading more, which means they would be the last to emerge from lockdowns.

Availability of staff

With different places having different levels of lockdowns, maintenance and other staff may not be able to turn up for work at full strength for some time.

Work from home

A lot of people are adjusting to working from home. It could become a new normal.

Since neither a drug nor a vaccine for the virus seem to be within reach right now, even after lockdowns are eased, people might prefer to work from home, and business would largely agree, since that minimizes the risk of workers infecting each other in the workplace.

That would have a material impact on the coworking business model.

‘Hot’ would become cold

Remember one of the features of coworking is shared access.

• In many coworking spaces, this not only extends to larger facilities such as conference rooms, but also to basic facilities such as desks.
• In other words, one business may hire a desk from 9am to 1pm; then another company can hire that same desk from 1:15pm to 4pm.
• Such assets are called ‘hot’ assets. Typically, they yield a higher return for the coworking company. ‘Hot assets’ enable a coworking company to scale up in the sense that a single asset can bring in multiple payments from multiple users within 1 day.

However, with the social distancing norms in effect, business and people would be averse to using such facilities.

The pre-covid19 outlook of the coworking sector in India

Till early 2020, the coworking industry in India was booming.

Both foreign companies (like WeWork and Regus) and domestic ones (like Awfis and Cowrks) were setting up shop, and competing with each other to snap up work spaces and acquire clients.

There was some churning in the industry, leading to a number of mergers and acquisitions but that was attributable to some purse-tightening by investors in light of the WeWork debacle, and did not pose any material risk to the viability of the coworking sector in India.

Negative effects of covid-19 on the coworking sector in India

As you might expect at this point, covid-19 will land quite a few blows on the coworking sector in India.

A permanent decline in office space requirement?

Covid-19 has spurred a disruption in attitudes towards work, and remote working is catching on.

Also read: Companies are Asking their Employees to Work from Home due to CoronaVirus

Firms are innovating to offer remote and work from home solutions like virtual conferencing applications (Google’s Meet, Facebook’s Messenger Rooms, etc) and planning and productivity tools (like Asana).

If this trend sustains, it might lead to a permanent decline in the demand for office space.

Clients are themselves affected

The shutdown has led to fears of an imminent recession, which has spurred people to eschew spending as much as possible, and conserve cash. This has led to a general fall in demand.

Also read: 14 Founders Shared Opinions on how Industry and Customer Behavior will Change after Coronavirus Fight

Consequently, even as workers work from home, businesses have been affected due the general lack of demand in the economy.

So, they are choosing to cut costs as well, which means they won’t be in a hurry to rent work spaces, and even existing contracts may not get renewed.

As Ankit Sachdeva, chief growth officer of Co-Offiz, put it, “People are not coming to our space due to the lockdown and we see no new business conversions any time soon”.

Bills still need to be paid

• Coworking companies will still need to pay rent for the spaces they’ve hired; utility bills will still need to be paid.
• Safety and hygiene will need to be maintained for the spaces to remain suitable to work in, which entails costs.
• Payroll cuts may clash with government directives.

Social distancing and hygiene norms will increase costs

Even when the economy does revive, and businesses start returning to coworking spaces, social distancing norms will reduce scalability.

For example, teams may not want to go for ‘hot assets’ (from before), and renting entire desks and rooms may price a section of firms out of the market, shrinking the client base.

Apart from that, hygiene norms like making sanitizers available throughout the facility will increase costs.

Some positive developments for the coworking sector in India, post-covid19

However, it is not all doom and gloom.

At least one major investment has come in

On April 23rd, Investors Clinic and Kocreate announced their intention to invest Rs 10 crore in a coworking joint venture.

They expect demand for coworking spaces to pick up once lockdowns are eased, and especially after the pandemic is resolved.

Their intention is to partner with a few builders who have been struggling with funding over previous quarters.

These spaces are expected to be state of the art, AI-enabled and covid-19 compliant

India’s startup ecosystem will endure

• Before the covid-19 disruption, India’s startup ecosystem was estimated to generate up to 12.5 lakh direct jobs by 2025.
• While covid-19 has definitely ravaged businesses in the short term, this too shall pass.
• In fact, many experts believe the recovery will be quite quick.

This means that the medium to long term growth projection of India’s startup ecosystem remains more or less on track. And that will obviously be a big boost to the coworking sector in India.

Larger firms may want access to coworking spaces

Larger firms may want to have access to multiple work sites, so that if one location is compromised due to an infection, other locations can carry on.

Coworking companies can try to tap this demand.

In fact, this is not a wild assumption.

Neetish Sarda, founder, Smartworks, said “Corporates have informed us that they do not want to spend a significant amount of capital to open new offices, they want more flexibility” in an interview.

Some steps coworking companies in India can take

Coworking companies can take some steps to stave off the damage from covid-19:

Form and widen an industry association

A number of coworking companies have indeed decided to form an industry association.

Known as the Indian Workspace Association (IWA), it includes more than forty coworking companies across India.

More coworking companies should join the industry association, to make it as broad-based as possible.

Such an association can:

• Formulate industry-wide policies.
• Help smaller players plan their operations and growth.
• Take up industry causes with the government and other relevant players.

Seek help from the government

In a free market economy, intervention from the government is generally best avoided.

However, this is an unprecedented situation; one that calls for unprecedented actions, including asking for governmental intervention in the form of

• Expediting tax refunds.
• Necessary relief on rent, utility, and payroll obligations.
• A dedicated credit guarantee scheme.

Use market research and analytics to offer more facilities

Coworking companies will need to invest in market research and analytics to understand the demand for facilities, and offer those.

Also read: Coworking Space - Facilities and Benefits

Local trends will have to be understood and steps taken to redesign available spaces accordingly.

Partnering with other service providers

Coworking companies can partner with business incubators, accelerators, and other relevant business service providers to provide more rounded solutions to work requirements.

To sum up, amid all the doom and gloom, it is important to remember one thing. Remote working is not a new thing; and coworking has coexisted with remote working for years and years.

The same will happen for working from home.

After all, the community of people from diverse businesses that a coworking space provides cannot be replicated in a work from home scenario. And such a community is necessary to keep spurring innovation and disruption.

Finally, coworking spaces can try to transition from providing only work space to providing complete growth solutions to businesses, in partnership with related services.