DECENTRALISED OFFICE SPACES
THE NEW NORMAL OF WORKING
THE COVID-19 PANDEMIC HAS BROUGHT IN QUESTION THE CONVENTIONAL CORPORATE REAL ESTATE DESIGN AND INTENT OF LARGE CENTRALIZED OFFICE LOCATIONS.
Text: Dolly Singh
COVID-19 has forced business around the world to adapt to the novel ways of working and embrace the “new normal”. In response to the current pandemic, employees around the world adapted to working in the virtual realm. In fact, they have been so efficient at working and collaborating via digital platforms that many organizations are starting to re-evaluate their real estate portfolios and rethink their approach to office space.
One idea that is rapidly gaining prominence is the decentralized model, in which companies are looking to move away from a single centralized office space in favour of multiple, smaller satellite offices that are strategically located in suburbs and non CBD locations.
IS IT THE END OF THE “OFFICE” AS WE KNOW?
According to sociologist Richard Sennett, people in work settings need the freedom to distance themselves in order to maintain the quality of their social relationships. Also, as per another research, as much as people need private places to go to seek separation, they also need public places to bring them together.
Amit Ramani, Founder & CEO, Awfis shared his views, “With organizations focusing on employee safety, adherence to social distancing norms, cost optimization, and more flexibility in rental contracts, they are increasingly moving away from traditional real estate models to coworking and flex workspaces. Today, even the most traditional enterprises are now seeing the merit in partnering with co-working space providers to adopt the distributed workspace model, which allows for de-densification as their workforce can operate remotely from a flex workspace near their home.
Moreover, as many organizations are looking at work from home as a permanent way of working, they are on the lookout for a number of solutions to equip and empower their employees to seamlessly embrace this change. In lieu of the same, we recently launched our work from home product – Awfis@Home, which provides the flexibility to efficiently work from the comfort of one’s home while replicating the setting of a productive office work environment, including the Physical infrastructure, IT infrastructure & Tech integration.
In addition, in this phase of Covid, safety is a top priority for every individual and organization. Keeping this in mind, organizations and flexi workspaces are operating with full preparedness to ensure 100% safety. Companies are following SOPs to ensure the safety and wellbeing of their employees while maintaining the highest standards of hygiene. Also, the modern workplace is highly tech enabled with automations and IoT being used to create a contactless and synchronized work environment which is both smart and safe. Companies are making both temporary and permanent changes in the design sensibilities to address both the immediate and short-term changes in work behaviour & preferences owing to social distancing.”
Manas Mehrotra, Founder, 315 Work Avenue feels in the current situation, taking a conventional office space is becoming challenging for companies. “The inherent flexibility to adapt and adopt will augur well for the co working industry. The covid-19 pandemic and the prolonged lockdown have made both employers and employees realise some great benefits of remote work, which has potentially changed the dynamics of workplace usage forever. Most of the companies are looking for flexible office spaces, and thus safeguarding them from Capex cost, longer lock-in terms, huge deposits etc.
Corporates and large enterprises too will avoid high capital expenditures and look towards flexible working spaces to expand business. It will also help them remain agile and retain flexibility to adjust operations based on the market conditions. We foresee a huge jump in co-working space demand in coming months, as people want to have flexibility in the way they work, including locations, office tenure, options to expand and downsize anytime etc. There’s now a lot more interest now in taking dedicated and secure private offices, which is the big shift in the flexible office space industry. As large enterprises look to curb capital expenditure or long-term commitments on office property, co-working spaces will see a surge as they offer flexible infrastructure solutions and also set precedents for safe and healthy practices too.”
Kushal Bhargava, Co-Founder, MyBranch agreed that the pandemic has blurred the line between traditional and flexible work spaces. “Initially flexible workspaces were only providing office spaces but post pandemic they have started providing shop & establishment registration, branding at the entrance of the office, within the workplace or outside the office and have started providing a lot of facilities which were already given by traditional office spaces. Traditional office spaces are moving towards providing limited cabin space, more open sitting for the larger team, and not following the hierarchy in the organization. When the flexible work space started it was mainly for start-ups but now it is also attracting corporates. Roughly, 30% -40% of revenues of co-working spaces mostly come from corporates.”
A shift from single large office to smaller work units with shared amenities throughout multiple locations would result in more mixed-use office buildings. This new typology would facilitate more interpersonal communication by allowing people to interact and build relationships across units, or stay in their private work areas as need be.
Santosh Martin, Head of Sales, WeWork India added, “Companies especially enterprises and multinationals are opting for flexible workspaces as they are reconsidering their fixed asset investments in order to remain agile and retain the flexibility to adjust operations based on current market conditions. When we look at the larger commercial real estate landscape, consumers of all sizes are embracing the concept of flexible workspaces where the shift to flexible spaces has been due to a combination of location, agility, state of the art design, and savings up to 20- 25%.
With times as uncertain as now, signing long-term leases for office space is not a sustainable option. It could be a risk, even for the companies that are fortunate to be able to afford it. To mitigate these risks, some companies may forgo leases altogether, favouring flexible space solutions that they can use and pay for as per their requirement. That could be a dedicated office space they rent by the month or a meeting space they can reserve by the hour or day. For instance, at WeWork, we recently launched an ‘On-Demand’ model which is a daily pass where an individual can book (pay) one-day access to our select buildings on a microsite. By bringing agility to their portfolio with flexible terms and innovative deal structures, some businesses have also saved up to 50 percent of committed costs.”
MERITS OF DECENTRALIZED APPROACH TO URBAN OFFICE
While the organizations are revisiting the scale and structure of the offices to balance the levels of connectivity and distance among employees, it is clear virtual work is working for now but a formal work setting also matters as a means of building relationships and expressing aspirations. In such a scenario, decentralized approach has become a viable option for addressing the challenges associated with working from home such as isolation, lack of collaboration and culture building etc.
“Organizations are now readily partnering with flex workspace providers for sustainable solutions to work near home. In line with the same, Awfis has experienced significant demand and space take up from companies that are looking to optimize their costs in the current scenario. Therefore, we see distributed workspace models as the new trend with organizations dividing their workforce between WFH, WNH and work from main office,” concurred Amit Ramani.
“A decentralized, or ‘hub-and-spoke’, the model allows companies to maintain a central headquarter while simultaneously providing smaller, satellite offices spread across a city or even a country. Corporates today might split up offices across business hubs that also enable their employees to work closer to their homes. With 34 locations in the country, WeWork is a platform built for agility, flexibility, and community. It is uniquely positioned to help companies of all sizes adapt to change by offering them flex space centers in different business hubs while they save on cost. Working out of flexible workspaces like WeWork allows companies the benefit of networking and collaborating. Some of the best business ideas happen over a conversation, when one feels inspired in a beautiful workspace and where ideas flow freely. Additionally, with multiple locations in every city, the advantage that flexible workspaces offer is expanding the talent pool, and enabling businesses to hire from anywhere and retain talent successfully,” stated Santosh Martin.
Distributing workers throughout the city or region into smaller workspaces offers an opportunity to collaborate more with colleagues who live in close proximity, replicating the benefits of a traditional office.
“There are multiple benefits in adopting a decentralised approach to office space. Companies will have to practice social distancing within their campuses, which means they might have to station some employees in different locations. Companies will strive to be agile and prefer to build more flexibility into their real estate portfolios. The current situation will also see larger enterprises seeking smaller spaces to ensure synergised business continuity in the near future. Moreover, the pandemic has highlighted the importance of dedensification of office space and adoption of hub and spoke model,” said Manas Mehrotra.
The recent report by JLL anticipates that flexible space will grow by an average of around 15-20% per annum over the next three to four years and the market is expected to cross 50 million sq ft by 2023.
“Decentralised office space caters to a different set of occupiers, typically footloose tenants. The biggest advantage of decentralized office space that one doesn’t need larger office space in a concentrated area which helps an organization to easily move in and move out and gives a flexible work approach and when the office spaces are decentralized it makes employees closer to their home which ends up giving better productivity and employee satisfaction index. The future of decentralisation continues to look viable and attractive to corporate occupiers,” added Kushal Bhargava.
FLEXI-WORK SPACES CONTINUE TO BE IN DEMAND
One of the biggest changes in corporate real estate in the last decade in India has been the emergence of flexible shared office spaces. Their biggest USP has been the mixing of business offices with amenities such as event spaces, restaurants, and gyms within the building. Hotels and luxury residential too are now incorporating co-working spaces within the premises in the wake of the pandemic to offer workspaces near home.
Santosh Martin believes that flexible solutions will continue to drive the future of work even in a post-COVID scenario which will be led by flexible workspaces. “We are already witnessing a rising demand for flexible workspaces especially by large companies that are reconsidering their fixed asset investments in order to remain agile and retain the flexibility to adjust operations based on current market conditions. While enterprise members make up 60 percent of our member-base, we offer multiple flexible options that’ll suit everyone’s needs, whether they are looking to reduce commute time and Work Near Home (WNH) or are looking for a change of environment. The idea is to allow members the flexibility they need and the comfort of going back to the workplace. The benefits that these solutions provide are unparalleled hence, we have a positive outlook for steady recovery by early next year.”
Kushal Bhargava shared another perspective, “There are many changes seen in the co-working spaces postpandemic. The biggest change is the reduction in rental as due to Covid most of the corporates have given up their office spaces which result in a lot of difference between demand and supply. In metro cities, the rental cost has come down by 20% and in tier 2 cities it has gone a little lesser. Covid increased the demand for co-working spaces more in tier 2 and tier 3 cities as compared to metros. Before pandemic people were usually looking for open office spaces but post pandemic people want more cabin spaces. Also, pandemic made people realise that work can also be done through virtual interaction which allows organizations to give opportunities to employees to work from home town and rising the demand for office spaces more in tier-2 and tier -3 cities.”
Amit Ramani emphasized that the pandemic has caused a shift across sectors, globally, and the coworking sector is no exception to this norm. “We saw a steady movement in preferences within the co-working sector in lieu of the social distancing norms and safety protocols being observed. Organizations are looking at cost optimization, moving from Capex to Opex and more flexibility in rental contracts, and are therefore shifting from traditional real estate models to flexible workspace solutions. Even the conventional enterprises are now seeing merit in remote working and are partnering with us for work near home and work from home solutions.
Today, another challenge that companies are facing is /underutilized real estate as a result of their workforce working from home or subsequent downsizing. At the same time, they are also unable to let go of this space due to limitations on lease terminations and / or future growth projections and expansion plans. Our latest ‘Powered by Awfis model’ is a comprehensive solution that addresses this by enabling such organizations to optimize this real estate and create an additional revenue source. We partner with them to set up a flex space in the underutilized space within their premises and enter into a revenue-sharing model. We are expecting a significant uptake for this offering as well.
In the coming months, we see a lot of demand for flex spaces. We have seen a significant rise in demand in past few months as compared to April & May. Overall, we definitely anticipate a significant uptick in demand. With a shift in workspace needs and preferences, there is a massive evolution underway in this space to cater to these requirements. This is a strategy that we at Awfis have already adopted as we move further on our path towards offering integrated workspace solutions to our clientele.”
Manas Mehrotra feels the present disruption due to Covid-19 is temporary as the co-working industry is experiencing resurgence with the economy emerging out of lockdown. “Medium-to-long-term fundamentals remain sound as corporate occupiers seek out alternative options to reduce costs and capital expenditure. As a result, even the most conventional occupiers are now seeing merit in co-working. The post lockdown scenario is bringing in a wave of new opportunities for the co-working players.
As the professional world returns to normalcy, traditional offices owing to their rigidity will not be equipped to address the new normal. Many companies, even pre-pandemic, have had to deal with the burden of long-term, lock-in leases with heavy security deposits, which take away the ‘business cashflow’ ability to respond to changes in the economy quickly. Now, more than ever, flexibility is crucial and hence co-working spaces, with their natural flexibility and inherent readiness to add value are best positioned to adapt and redefine the future of work and workspace. As companies look to resume business, redesigning and restructuring of existing real estate will pose yet another challenge, however coworking spaces will be able to respond to design changes required postCOVID-19 quicker and more efficiently than traditional office spaces. We can also expect more mergers and acquisitions among operators soon as the smaller ones will find it difficult to survive as it is a capital-intense industry. The market, certainly, cannot accommodate hundreds of operators and large firms will hold sway and garner a larger portion of the market. Smaller players may be absorbed in mergers or will alternatively have to close down operations.”
COMPANY’S BUSINESS CONTINUITY STRATEGIES FOR THE FUTURE
The pandemic sure has thrown a curveball for both the tradition offices as well as co-working segment. Corporate are more likely to adopt hybrid model of work, blending remote and office teams and distributed working, creating multiple hubs to distribute the Covid risk. In sync, co-working space providers are stepping in to provide decentralised office spaces across cities.
Awfis: The Company has restructured deals, allowed delay in payments and paused contracts wherever it was required by the client to sustain their business in the current environment. It is working closely with clients to craft workplace strategy that will suit their evolving needs. Awfis is creating win-win partnership models like ‘Powered By Awfis’, which help companies optimize costs by creating flex workspaces out of unutilized or underutilized real estate thereby generating an additional revenue source for them. About 1000 units for Awfis@Home have been sold till now via direct sales as companies are providing allowances to employees for a comfortable work from home experience.
315 Work Avenue: 315Work Avenue has brought in plenty of changes to attract clients. Based on their inputs, it has come up with two very differentiating products to provide hospital/ healthcare facility standard sanitization at its workspaces. First is making use of an ‘Ioniser,’ a patented technology that provides hospital standard air filtration and kills all the germs in the air. Second is making use of coatings and paints which always keeps the surfaces sanitized. The company has also redesigned seating arrangement at workstations and in areas like the cafeteria, lift, breakout lounges, etc. to maintain proper distancing. The pandemic has evolved it from just being workspace providers to becoming a fully integrated workspace solutions platform for clients. The company’s priority now is to deepen the penetration in existing markets and enter newer cities. And is open to acquire smaller players in strategic pockets in tier one cities for further expansion.
While work from home model would have worked well in the lockdown, many companies however may not want it as a culture and many business verticals and functions still require employees to work in an office setting. Work from home may co-exist, but office space will not lose its importance as a strategic tool for corporate culture development and a source of competitive advantage.
MyBranch: Till the month of October during the whole pandemic, MyBranch experienced near to a zero drop in terms of revenue because whatever percentage of customer moved out MyBranch gained the same percentage of customers which results in zero impact on the revenue but the growth has been impacted as people are not taking the decision of expansion for a reduction in office spaces. Normally, larger corporates in Q4 (Jan, Feb and March) make expansion plans for next financial year, MyBranch also expects corporates to start post Diwali in terms of decision making. MyBranch focuses more on tier- 2 & tier- 3 cities and is currently in 25 cities with 28 offices and already booked to expand in 7-8 cities and only based on getting anchor customers i.e, depending on the customer requirement to work in a particular city. Until March MyBranch is planning to enter only those cities where their clients want them to enter.
WeWork: The Company’s growth plan this year will be to keep its focus on continuing to efficiently run each of the existing spaces in 34 locations across the country. It will not be aggressively expanding as it wants to pivot the energies towards attaining profitability for sustainable long-term growth. While the first three months of the year were profitable for WeWork India, as it moved towards the pandemic phase, there were some changes made at a strategic level to focus on existing locations, while it continued to enhance member experience through flexible solutions.