Bangalore buddies Aadil Niyaaz and Roshan Gowda (both aged 22) went from kindergarten to the university together until they finished their BE in Computer Science. Now they work — Niyaaz is a data analyst with an AI (artificial intelligence) startup and Gowda, a coder with a Fintech venture — for two different companies that focus on diverse domains and technologies.

But, they are housed under one roof, of a coworking space in the city.

A team of youngtrepreneurs (young entrepreneurs), Shylaja Sastri, Gautam Kesari, Nitya Abhinav, Mythili Rajagopal and Sasi Nair, work in an IOT (internet of things)-based farm produce marketing platform from three different shared work spaces between Bangalore and Mumbai.

Abhinav says, “Each one of us works shoulder to shoulder with somebody else from some other company, a startup or an entrepreneur. It is possible that every day we meet someone new who gives us a learning, or a tip to tweak the idea we are working on.”

“Coworking atmosphere is relaxed, peaceful and there’s nothing about being stiff-necked. At home you are expected to respect and accept your folks, at work you do the same with your colleagues, at a coworking space you won’t have either of these, but you truly respect and give space to strangers and learn from them. I’ve been coworking in the last seven months and it is amazing,” adds Kesari.

These young people represent a large number of new-age workers – including GenX and millennials – for whom offices are no longer places to sit, churn and loiter around. Rather, they are cool places that support creativity, networking, exchange of ideas and flexibility.

Coworking spaces are proving to be the best alternative for a rising number of freelancers, women employees seeking flexibility, and for those looking to be stationed at prime locales with hyper-connectivity and faster commute options in swish, state-of-the-art work spaces.

Redefined

Coworking spaces have redefined work culture globally and India is one of the most fertile grounds for the growth of this new work environment option. Currently the coworking or flexible office market is less than 5 per cent of the commercial real-estate market and it is expected to grow 30-50 per cent over the next 10 years, says Ankit Samdariya, CEO at The Hive, a company that offers the concept of integrated ecosystems and lifestyle campuses where people can work, live, eat, shop and have fun.

In fact, the new millennial workforce will accelerate this changing office dynamics further in the years to come. Statistics suggest that millennials are set to form 50 per cent of the global workforce by 2020 – and India is the youngest startup nation in the world, with a rapidly-increasing millennial workforce.

Anuj Puri, chairman, ANAROCK Property Consultants, says the millennial generation is ready to ditch conventional workspaces for more swanky, flexible and cost-effective office spaces that effortlessly embrace the latest technologies into their system. To meet this growing demand, India definitely needs more coworking spaces.

In a research report titled ‘Spotting the opportunities: flexible space in Asia Pacific’, realty advisory firm JLL says that demand for flexible offices – including coworking spaces and serviced offices – is growing faster in Asia Pacific than anywhere else in the world. In India, the growth of flexible office space is expected to be at 40-50 per cent in 2018. The region’s stock of flexible floor space is growing at 35.7 per cent per year compared to 25.7 per cent in the US and 21.6 per cent in Europe, adds the JLL report.

The potential market size of coworking across India is expected to be 13.5 million users by 2020 about half of which will be from enterprises, which are expected to take up 10.3 million seats. Freelancers and Small & Medium Enterprises (SMEs) are expected to contribute 1.5 million users worth of demand, while it is anticipated that startups will demand up to 100,000 seats by 2020. The report further indicates that the top six cities will require an estimated 5 million seats in co-working spaces, while, 8.5 million of the projected demand will be in tier-2 and tier-3 cities.

Sandeep Sethi, MD, Integrated Facilities Management West Asia at JLL says: “In India, the coworking segment is expected to grow by 40-50% in 2018 alone. By the end of the year, we anticipate flexible workplaces would attract investment upto $400 million. With over 200 premium business centers across the country, set to double by 2020, co-working spaces will reflect the global trend of being closer to 20% of total workspace.”

A CBRE marketview notes that in the previous quarters, office space take-up was dominated by small-and medium-sized transactions in Q3 2018. Corporates from sectors such as technology, engineering and manufacturing and agile/co-working/business centres dominated large-scale deal closures during the quarter. No doubt, workspaces in the country are moving from simple, clumsy desks and chairs to attractive, much better-utilised and plug and play spaces that can be easily accessed anytime and from anywhere. With businesses, big and small, continuing to grow and broaden their horizons, expensive real estate coupled with new-age workers’ desire to work in an aesthetically appealing environment have indeed spurred demand for collaborative workspaces in India.

Emergence

An action packed vertical About half a decade ago, coworking operators emerged alongside the start-up boom in India. Until recently, only small local players dominated the coworking segment. But now, more than 200 operators (Indian and overseas) facilitate coworking offices with close to 500 shared work spaces across various tier-1 and tier-2 cities across the country. As per estimates, the country already has built a coworking infrastructure of 15 million square ft.

Originally, coworking operators started with a small footprint in India. But now they are slowly carving out a significant space in the real estate industry. To cater to the high demand, developers like RMZ Corp, K Raheja and Embassy Group have also collaborated with local and international coworking operators to make an entry in the industry. New York-based WeWork, recognised globally as one of the most valued shared space providers, already has a collaboration with Embassy Group to create sizeable shared office space in Bangalore, Mumbai and the National Capital Region.

The market is expected to witness huge expansion by Indian operators as well. For instance, Bangalore-based CoWrks has developed over 2 million square ft in Mumbai, Chennai, and Gurgaon this year. CoWrks caters to all demographics of the workforce with an array of membership options, including flexible and dedicated desks, customizable private studios and even virtual membership.

Brussels-based International Workplace Group (IWG), formerly Regus, has a sizeable presence with close to 100 coworking locations across the country. IWG’s coworking brand is called Spaces. Other shared work space players, BHIVE Workspace and 91 Springboard have already made a mark in the industry with sizeable ramping up in the last couple of years.

Breaking all conventional norms, even the big daddies of the corporate world are now scouting around for more flexible and cost-effective workspaces so as to cater to the evolved needs of their new workforces. They prefer small teams on specific projects to work in a collaborative culture. Those eyeing smaller towns favour satellite offices that are cost-effective and more financially viable.

In addition, SMEs and startups are also boosting demand for coworking spaces. NASSCOM estimates show that India will have more than 10,500 startups by the end of 2020 and will remain third only to the US and UK in terms of the startup ecosystem. In fact, India is the world’s youngest startup nation with 70 of founders founders less than 35 years of age. This younger generation of entrepreneurs will keep the coworking ethos alive and sizzling for years to come, predicts Knight Frank.

Private equity players have also been exploring to invest in coworking startups. Sequoia Capital invested $20 million in co-working space startup, Awfis in 2017. A study by international realty advisory firm JLL says coworking spaces in India are expected to grow by 50 per cent to touch more than one million square ft of leased ‘alternative’ workspaces by the end of the year. The co-working segment in India is expected to receive $400 million in investments by the end of 2018. Real estate firm CBRE says coworking companies would take up almost 10 million square ft of office space by 2020.

The work environment is extremely critical to employee happiness, work satisfaction and productivity. Office designs, furniture, devices and amenities provides and even colours have a significant impact on the operational efficiency of employees, says a recently released Knight Frank India report on the changing perceptions of the workplace titled ‘Co-working: The office of the future’.

Research has shown that the introduction of natural elements such as fresh air, sunlight, greenery and even natural fragrances and sounds in a workplace play an important role in reducing work stress and enhancing creativity.

Due to the changing perceptions of the office, the workplace is now being looked at as an environment that needs to be managed and optimised. It is being viewed as an instrument that could drive a dynamic and vibrant culture of corporate productivity impacting the financial, cultural and environmental ethos of the organisation. This far-reaching agenda warrants an element of specialisation. The co-working operator is filling this niche and is being regarded as a specialist in workplace management who can cultivate an environment of collaborative enterprise that yields tangible benefits to the occupier.

According to Knight Frank India, the country is witnessing a proliferation of startups and SMEs, buoyed by the government’s concerted efforts to create a sustainable ecosystem for entrepreneurs. On their part, the entrepreneurs – a large number of them being millennials – believe in harbouring global aspirations with a staggeringly ambitious mindset that was not in evidence a few years back. This provides a perfect platform for dynamic coworking business centres to cater to the office space needs of these aggressive growth-seeking startups.

What’s making it tick? In the Indian context, work culture is shifting towards greater work life balance, which steers focus to providing conducive and integrated environments. A growing illennial workforce is making factors such as flexibility and the overall experience an important characteristic for their workspaces. Rise of the millennials and a large, vibrant startup ecosystem are the key factors contributing to this trend. With various spaces offering multiple community-centric events and offers to keep the members engaged, the coworking system is also the new avenue for highly targeted networking and socialising.

Management of facilities and amenities is a very resource intensive task. All these drive more people to opt for spaces that are managed. The constantly evolving nature of new age businesses and need for customised solutions as business changes quickly. There is a need for agile spaces that adapt to the growth and shrinking rates of current businesses. Plug-and-play brings simplicity and easy kick-start for entrepreneurs and startups.

Benefits

Culture share, mentorship, learning coworking spaces attract a pool of very diverse and skilled individuals. Employees of firms working out of coworking spaces enjoy the benefits of a shared culture, mentorship, exposure to other people, industries, technologies and cultures. Companies have a chance to collaborate under the same roof and explore synergies for growth. The option to expand as the team size grows on-demand without proportionally increasing overheads is again a feature that saves time, effort and money for businesses – with startups hiring and shrinking as the business needs, this becomes a key value proposition over traditional spaces.

With office rents rising across India, the total space occupied by coworking spaces is likely to witness at least a 30-40% annual increase. Cities that will offer the best opportunities for this trend include Bangalore, NCR and Mumbai, followed by Hyderabad and Chennai, says JLL.

Intrinsically, the idea of shared workspaces brings in cost efficiency for every business that is a part of the ecosystem, with a potential to save up to 30 per cent to 40 per cent on office expenses. The concept of coworking brings in efficiency in amenities and services, ensuring better utilisation of common elements for offices such as the IT infrastructure, housekeeping and other ancillary services. Coworking offices are in huge demand considering the flexibility, creativity and amenities people get along with value added services. Also, the coworking appeal is no longer restricted to startups and freelancers, it has become more appealing to long established businesses and multinationals as well, who see the benefits of working out of a shared space environment in terms of reduced costs and reduced hassle, says Priyanka Krishnan from IShareSpace, a contemporary, premium, shared space and a hybrid between a business centre and a co-working space.

Buying, renting and leasing costs of commercial spaces have gone up drastically in the country. The scenario has brought additional pressure on entrepreneurs and startups. Coworking infrastructure comes as a huge respite for many. To lease a traditional office, an enterprise needs to pay a huge amount as advance in addition to a chunky monthly rent along with electricity and broadband charges. But for a coworking workspace, an enterprise needs to pay only a small monthly rent, just for the number of seats it wants to use. These cost-friendly factors make coworking a feasible option all across the board from small entrepreneurs, small companies, and medium enterprises to large business conglomerates.

“All types and sizes of firms are now embracing the new reality of employees’ expectations for a technology-enabled style of working. Accordingly, they are ready to alter their workplace strategies. Moreover, coworking is proving to be cost-efficient by nearly 15-25 per cent by cutting down rental costs, fixed-capital investments and property maintenance,” adds Puri of Anarock.

Demand for coworking spaces and flexible office is likely to jump by between 30 per cent and 40 per cent in 2018, according to estimates from real estate consulting firm Jones Lang LaSalle (JLL). By 2030, flexible work spaces could comprise 30 per cent of corporate commercial property portfolios worldwide, said Jeremy Sheldon, managing director, Markets & Integrated Portfolio Services, JLL Asia Pacific. “Although corporate adoption is still in its early days, there are certain factors that will continue to make this region a hot spot for coworking growth.”

Samdariya of The Hive adds, the growth in this sub-category is unprecedented and promising, the fact that both of our Chennai and Bangalore centres are operationally profitable is a testament to that. With increasing awareness of the perks of coworking, the demand is skyrocketing across demographics. The urban youth continue to be the primary drivers of occupancy, but increasingly we see traditional companies switching to flexible workspaces too. Judging from the healthy marketplace scenario in the top cities, we can expect more and more realty firms to enter the industry in the months to come.

The next few years are very interesting times as traditional players in commercial real-estate react to the disruption caused by shared spaces and new age coworking spaces increase their focus on sustainable business models by expanding their gamut of services and focusing on ancillary revenue sources through events, workshops and innovative amenities. Overall, by 2020, such working spaces will still comprise roughly only 20% of India’s overall premium working spaces, as estimated in a study by JLL. Many landlords are looking to joint ventures and profit share models with operators who supply design and technology for a management fee.

By creating a supportive environment for collaboration and innovative thinking, companies may improve performance – however, coworking can also expose organisations to several risks. For companies dealing with high volumes of confidential data, sharing spaces with external organisations can be potentially risky. Today, cyber security is a major strategic imperative for organisations, and efficient coworking spaces will need to find ways of mitigating these concerns.

There are several challenges that have to be tackled. For example, changing the conventional mindset of a client who would want to book a meeting room based on the touch and feel factor rather than an app. Data security and privacy are also impediments in the way of a corporate taking up coworking space especially as the value of data becomes a greater source of competitive advantage, says Knight Frank.

All major coworking deals in 2018 happened around the CBD areas of cities. Coworking giant WeWork leased major spaces in key localities across cities, including 1.2 lakh square ft space at Domlur in Bangalore, 1.9 lakh square ft space at BKC and 2 lakh square ft at Andheri in Mumbai, and 2.25 lakh square ft at Cyber City in Gurgaon.

As for property sizes, nearly 30 per cent of the acquisition of coworking spaces in 2018 happened in the size range of 50,000-1 lakh square ft followed by 20 per cent each of those sized between 10,000-50,000 square ft and 1 lakh to 2 lakh square ft area. Consolidation of coworking spaces started in 2018 with major acquisitions like One Co.Work acquiring IShareSpace and AltFCoWorking acquiring Noida-based Daftar India.

In 2018, a majority of coworking deals were driven by large PE players and venture capitalists – while in 2017 most of the deals were driven by angel investors and only a few PE players. A recent (Y)OUR SPACE report released by Knight Frank says some 69 per cent of global corporates plan to increase utilisation of coworking and flexible workspace over the next three years. Some 44 per cent believe flexible workspace will comprise up to a fifth of all corporate workspace while 75 per cent of the respondents intend to boost happiness and productivity through utilisation of business space. The study notes that the demand for flexible workspace is set to accelerate as over two-thirds of global corporates plan to increase their use of flexible coworking and collaborative space over the next three years.

Shishir Baijal, chairman and managing director, Knight Frank India says, “With changing perceptions of office, the workplace is now being looked at as an environment that needs to be managed and optimised. It is being viewed as an instrument that could drive a dynamic and vibrant culture of corporate productivity impacting financial, cultural and environmental ethos of the organisation. The coworking phenomenon is gaining wider acceptance with the mainstream Indian occupier as big corporates today constitute approximately 50 per cent of the overall client roster.” Knight Frank interviewed senior executives at 120 global companies which collectively employ over 3.5 million people worldwide and occupy an estimated 21.65 million square m (233 million square ft) of office space.