By Yogesh Arora
Coworking unicorn: The rise of startups in India has changed the coworking market in India. Known as millennial workspaces, according to Statista, coworking market is expected to grow by two billion $worldwide. Coworking spaces in India are projected to grow at 16 per cent CAGR between 2021 to 2026. In Q1 2023, coworking spaces represented a 27 per cent share of the net absorption of 8.2 million sq. ft. across tier 1 cities, a significant increase from 14 per cent in Q1 2019. Coworking spaces have become ideal for small and medium-segment startups and businesses with a hybrid and flexible working style.
From just a fad, coworking spaces have become a norm in today’s business culture. Despite the controversy surrounding coworking industry, the spaces are gaining popularity in Tier 1 cities and expanding to Tier 2 and 3 cities in India. Despite challenges, co-working companies are using innovative strategies and technology support to reach the billion mark.
Highly competitive Coworking Market
The convenience offered by coworking spaces, like less rental costs and maintenance hassles, makes co-working very lucrative for businesses. However, many domestic and international companies have entered the coworking market, making it highly competitive. However, coworking companies are employing unique strategies to combat high competition.
Also read: The role of co-working spaces in promoting collaboration and community building in India
Coworking companies employ unique marketing strategies to generate leads, like hosting business events and workshops to invite people into their space and network, leveraging CRM solutions like automated billing, business report generation, meeting space booking, email newsletter functionality and printer connectivity support, creating effective workspace management.
Cost Effective Solutions
One of the biggest challenges that coworking spaces are facing is capital inefficiency. The rental commitments with the landlords are long-term, whereas the clients who occupy the spaces are short-term. The charm of coworking spaces for businesses is easy affordability. The agreement between companies and coworking landlords was a simple fixed rent agreement for a short-term period. This made co-working popular as it came easy on the pocket without the hassle of maintenance and the added infrastructure cost.
However, this also led to cost in efficiency. To tackle this challenge, coworking companies are now applying Managed Aggregation Model or MAM, where the spaces ties up with landlords of underutilized commercial spaces and shares the revenue with the landowner.
Real estate challenges
Although the partial dependence on real estate and the heavy capital involved make it a slower-growing and less scalable venture than tech-focused products. Unlike tech-based startups, which can rapidly expand, coworking spaces demand substantial investment in infrastructure and leasing agreements. Despite this challenge, coworking spaces are expanding as the cost of real estate is significantly reduced since it is shared among tenants. This is the most significant advantage of coworking spaces and the reason behind their popularity.
Limited Customer Base
Despite the popularity of coworking spaces among startups and businesses, it has yet to gain as much success. This is due to the working culture of Indian Business. There are numerous businesses which prefer traditional business culture. However, the amenities and ease offered by coworking spaces have expanded its customer base. Earlier, only small or medium size businesses were opting for coworking spaces. Recently, even large businesses are also opting for coworking spaces. The cost-effectiveness and excellent services with no infrastructure hassle have raised the demand for coworking spaces.
Also read: What is pushing the demand for co-working spaces in Gurugram?
Maintenance Hassles
Coworking spaces demand high maintenance. Due to flexible working hours, large coworking spaces have to run 24/7. This results in increased power consumption and high electricity costs. Apart from power consumption, coworking spaces also maintain security personnel and other staff to provide ample security from theft and other damages. To handle these challenges, coworking companies are taking the help of technology and employing energy-efficient methods. Many coworking companies are going green by using energy-efficient materials like LED lights and solar panels to reduce costs. They opt for full automation to make office spaces self-sufficient and reduce staffing costs. By following regular preventive checks, they reduce maintenance costs.
During the pandemic, the coworking market witnessed a rise in demand. It became popular among startups and middle and small businesses. After gaining popularity in tier 1 cities, many coworking companies target tier 2 and tier 3 cities. However, many challenges still need to improve, pulling down coworking companies. However, coworking companies are increasing their expansion and scalability by employing smart solutions and technological advancement. By creating collaboration, using cost-efficient models and enhancing operational productivity, coworking companies will surely hit the billion mark.
Yogesh Arora is the Co-founder of AltF Coworking. Views expressed are the author’s own.