India is home to some of the biggest technology giants of the world with the reputed FAANG (Facebook, [now Meta], Amazon, Apple, Netflix and Google), along with many more, establishing their biggest centres in the country. This was propelled by the availability of talented workforce and conducive government policies apart from being the only billion-plus populated consumer market after China. While these factors attracted these global giants, the presence of a thriving commercial real estate complemented their widening presence.
According to a CBRE South Asia report 2022, the total office stock in India is pegged at 773 million square feet and is one of the fastest growing markets in the world. While absorption by technology firms continues to lead the leasing of spaces, it is being closely followed by banking and financial services and life sciences firms. However, with the changing industry dynamics and customer profiles, an evolution from its current form becomes pertinent to ensure long-term viability of the sector. This is where the co-working spaces have played a pivotal role in making the commercial real estate relevant again by democratising the sector. Their popularity over the years have grown manifold and leasing by co-working space providers now stands after technology firms in office space absorption and constitute roughly over 20% of total space absorption annually. This assumes significance as commercial space absorption is usually dominated by less than 10,000 square feet, followed by medium-sized offices ranging from 10,000- 50,000 square feet transactions in 2021, a space where a majority of co-working space providers operate.
By principle, co-working spaces enable leasing of micro office units to freelancers, startups and small businesses on a flexible leasing policy which provides them with the ability to expand and consolidate their presence seamlessly. This enables small to medium business owners to tap into quality office spaces which earlier was only limited to big technology firms who lease Grade A office spaces for a stretch of several years with significant transactions involved. Co-working spaces brought this disruption with their technological platform allowing occupiers to seamlessly book desks at a fraction of cost and avail other services such as IT, F&B in a no-frills manner.
This is opening up newer verticals for the commercial real estate and bringing new business models to suit the evolving nature of businesses. Today, co-working space providers are venturing into swathes of value added services by working with vendor partners in the areas of IT services, insurance, food and beverages, transportation, retail, sports and entertainment to establish it as an exciting workplace, thereby attracting more occupiers. This enables the occupiers to position their company as people-friendly and is able to attract and retain the best talent.
What it does for commercial real estate is it creates a stickiness factor, a term widely used in the internet commerce realm. It’s imperative to ensure there is a healthy inflow of new customers while existing customers continue to operate. This fact came to the fore during the COVID-19 induced lockdown where employees for a prolonged period of time were working from home and occupiers were forced to give up their spaces by raising the force majeure clause. Interestingly, several of these occupiers resorted to occupying space at coworking providers once the lockdown opened up to enjoy the flexibility of operations while the external environment stabilised. This highlights the role of co-working space providers in making the commercial real estate segment relevant again with the hybrid way of working taking precedence.
As we look forward to the next decade of India, the country is going to be the centrepiece of developments across technology, medical and various other sectors. This necessitates the presence of a strong commercial real estate market which offers the flexibility to occupiers to be agile while reaping the benefits of an established industry.