Co-working Spaces: Hidden Treasure for Investors
The culture of co-working spaces has received high acclaim from patrons in India, creating space for domestic and international brands to penetrate the market
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The professional world has witnessed major changes owing to the rampant technological advancements in multiple fields that have directly or indirectly affected the work culture globally. Over a period of time, these transformations have created a need for an ecosystem that promotes growth of budding entrepreneurs by giving them a platform to discuss ideas and network with the right people.
Keeping this demand in mind, the culture of co-working spaces has received high acclaim from patrons in India—creating space for domestic and international brands to penetrate the market and establish a name for themselves. As per a report by a registered real estate committee, co-working spaces have witnessed tremendous growth over the years with a 50 per cent increase in area in 2018. The report also highlights that there are currently over 200 players managing approximately 420 co-working spaces in India. These statistics clearly point towards the fact that there has been a major boost in capital investment in the co-working sector.
Reports have also shown that the top seven cities in India have approximately 300 to 330 co-working spaces successfully operating in harmony with each other. Due to increased opportunities and simultaneously increasing growth prospects, the industry has been gauging interest of various venture capitalists, investors and businessmen who have a keen interest in entering the space at a nascent stage. Here's how investing in co-working spaces is a profitable business opportunity.
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Success of start-ups in India: In an attempt to strengthen the start-up ecosystem of the country, the government announced the launch of the national flagship initiative, Start-up India, in August 2015. Its aim is to transform India into a country of job providers instead of job seekers. As per reports, there are more than 14,600 start-ups recognized under the programme as of yet. It covers all 29 states and six union territories. With such a substantial start-up ecosystem the future of the nation is radiant. These start-ups look for office spaces to outset their operations and find co-working spaces a viable option.
Great demand in tier I and tier II cities: One of India's largest professional real estate company estimates that over 13 million people will work out of co-working spaces by 2020. This trajectory has also been supported by the budding entrepreneurial culture in tier II and tier III cities where existing co-working spaces have received tremendous response. However, this market is currently unexplored and underpenetrated, but has extremely high potential for growth looking at high population of individuals whose aim is to make a better life for themselves.
Return on Investment: Once the investment is done, the property will continue to yield returns for the time to come. The business of co-working is an ongoing process with a number of start-ups coming up regularly. A report by multinational professional services network states that number of start-ups in the country has gone up by approximately 43,000, in a span of just ten years.
Not just SMEs but also the established businesses are shifting base to co-working spaces. Also, experts say the co-working industry is anticipating a valuation of $45-50 billion by year 2022. Globally, there are more than 3 million co-workers in 2019. Considering the above-mentioned figures, we can safely say that early investors will yield higher return on investment compared with those who invest at a later stage.
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Unites well with new-age professionals and their demands: In an attempt to boost productivity and keep themselves motivated, millennials today are opting for new-age workspaces, co-working spaces and cafes providing space to professionals. Networking is a key factor that is attracting budding entrepreneurs to work out of a shared workspace. Millennials today comprise of over 50 per cent of the global workforce and India is a hub for a rapidly expanding millennial workforce. With this visible shift from employment to heightened entrepreneurial aspirations, millennials are on the look-out for relevant workspaces that give them the desired exposure and networking opportunities along with agreeing with their budget constraints. This opens avenues for new players to enter the market and existing players to redefine their strategy in order to appeal to the needs of this growing business-oriented population.
Suitable for multiple businesses: It is exciting to see that co-working spaces are no longer limited to small businesses and start-ups any longer. Bigger companies and MNCs have also started availing services of co-working spaces in cities where they have smaller teams. Known names such as IBM, Facebook, Bira, Byju's and National Bulk Handling Corporation have offices in co-working spaces in various cities across the country. These MNCs are keen on expanding their base to smaller tier I and tier II cities and thus prefer shared workspaces for being cost effective and also for being a hustle-free process.
As per recent industry reports, the return on investment for a residential property remains to be as low as 2-3 per cent and a commercial property goes up to 7-10 per cent, establishing a trend that investment in commercial properties would be viable as a business proposition.
Additionally, with the number of start-ups growing and flourishing in the Indian market, there has been an increased realization of a need for an appropriate work ecosystem, and conventional office spaces ideally do not make business sense when it comes to analysing the demand and supply trend within this particular industry. Comparing the need for spaces, budget allocation and interests of the target population, it can be deduced that co-working spaces would yield more monetary gain for investors in contrast to conventional spaces that would appeal to a smaller consumer base.
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Co-working: Future of commercial real estate
The total number of co-working spaces in India accounts for over 850 spaces with approximately 13 million people expected to work out of shared workspace by 2020. Moreover, by 2020 co-working spaces will comprise of as much as 20 per cent of total workspace globally. In India alone, the co-working spaces sprawl over an area of 3.4 million sq. ft. With the introduction of real estate investment trusts in India, the commercial real estate sector is likely to grow at a tremendous rate as well, making them one of the most sought-after investment projects in the country today.