Flexible workspaces are demanded by companies and not individuals
Sandeep Singh, Founder of Flexispaces.com speaks to Leandra Monteiro elaborating on the business model of a co-working space.
Please elaborate on the process of setting up a Co-working facility & the type of association with property owner or developer
Co-working spaces have become very popular and their numbers are growing rapidly in India. Before establishing a co-working space one needs to do research. There’s a need to know the market inside out before launching a co-working space. Sometimes owners of co-working spaces get fully furnished and ready to move co-working spaces and other times just an empty space. One needs to work with architects, designers and construction companies to build the perfect workspace. Interior design and furnishings play a significant part in creating an atmosphere that leads to high work satisfaction.
It’s important to consider your audience before planning a co-working space. Consider the demographics of your customers, such as whether they would want more collaborative areas, kid-friendly spaces, and even spots for pets. The more you take steps to cater to a specific audience the more likely it is the audience will come and remain in your co-working space. You can have sofas, floor cushions or bean bag chairs for those who favour a laidback atmosphere, office chairs and desks for freelancers who are most productive in an office environment.
Property managers are aware that a co-working space will add value to their building and earn a good return on their investment. Since co-working operators manage only the daily operations, property owners have realized they can monetize and benefit from the popularity of co-working spaces. Because of their rising popularity and profitability, commercial real estate investors have become interested in renting spaces to co-working operators. Hence it’s easy to cultivate healthy relationships with property owners.
Brief on the popular business model for the co-working space providers and why.
The co-working space business model is a bit different from that of traditional office buildings. A co-working space is itself a startup which has disrupted an existing market. It not only makes money earning rent but also from other sources such as partnerships and memberships. Besides renting dedicated workstations, many coworking spaces offer dedicated cabins for rent too. Many coworking spaces that have halls and meeting rooms rent these spaces for events like conferences, seminars, training workshops, etc. In a coworking space, there’s only one model, either you rent the space, or you enter a partnership with the landlord. After paying rent and expenses, the margin cames to about 30-40% depending on the locality and the rent.
What are the various packages an individual tenant and a corporate tenant can avail of?
The benefits of co-working spaces include community and collaboration, but it’s equally important that members have access to private, personal space as well. Besides this, tenants require amenities like tea-snacks, purified water, and beverages, stationery supplies, high-speed Internet, power back-up, private spaces for corporate and social events, etc.
An individual tenant is someone running a small freelancing agency, a team of 3-4 people; they are not long term tenants. They may rent a desk of or, more likely, a small office space. They generally pay a few hundred dollars a month for the right to use desk space, depending on the market, though they may not have ownership of a specific desk. For them, a coworking space is like a large, quiet coffee shop with a strong sense of community. Corporate tenants are the corporate customers who rent out a major portion of the space. They have a locking period of 2-3 years.
While flexible workspaces are much in demand. What are revenues for the providers in keeping with the costs.
Flexible workspaces are demanded by companies and not individuals. Individuals find the renting model better than that of flexible co-working spaces because the latter is more costly. But for companies, they are a dime a dozen. Let’s say, a company has a team of around 100 people; to make them work together they need to find a broker, pay him, rent a space, and then pay a consultant as well. Besides this, they have to furnish the workspace and the lock-in period is a lengthy 5-9 years and whatnot. So for companies managing all this is hectic. Therefore, coworking spaces are easy desirable, because they offer a desirable area, a dedicated space, and are fully furnished. Also, they don’t need to hire additional people such as office boys, network engineers, IT guys, etc to manage amenities.
What are the financial risks associated with the co-working business model?
The basic business proposition of Co-Working is companies increasingly want to leave their large permanent office complexes, and instead have workers move into flexible smaller spaces, at different locations, and pay a flexible hourly rate for doing so. A floating revenue model and high fixed costs make the model fundamentally risky and pose challenges that co-working companies have to withstand.
Owners of co-working spaces have to pay high decoration fees and initial deposits, coupled with insurance expenses and marketing expenses to attract customers, members, sub-tenants and investors. They must also give a 6-7% annual return to their landlord as well. So if more than 50% of space is not occupied then its owner suffers a loss every month.
At the same time, they have to organise social events (e.g. seminars, meetings, etc.) and uphold and maintain public facilities and common areas. If an operator cannot meet his financial obligations, he may not be able to continue running his business and accordingly, may be subject to the landlord’s re-entry. This is the risk that operators, landlords, investors, relevant members, sub-tenants may have to face.
In the future, how do you see the synergy developing between the developer, co-working provider & the end-user?
Co-Working players will adopt a franchise model. The business relationship between a developer and a co-working space provider is no longer confined to just the leasing of commercial space. Not only are coworking spaces going beyond creating workspaces and partnering with developers to earn higher returns, but they are also handholding developers using marketing and offering floors in buildings to clients on conventional leases.
Co-working space providers have successfully bridged the gap between supply and demand in India’s office spaces even as millennials are getting used to the concept of co-living. But sometimes some workers or employees may feel uncomfortable working in co-working spaces. The reason behind this is that co-working spaces tend to be crowded, noisy and distracting. Another is such spaces lack privacy. People may struggle to maintain privacy and confidentiality during phone calls with sensitive clients and to keep private information secure.