Business Drops, Rents Waived: Lockdown Hits Co-Working Spaces Hard
Here’s why co-working spaces cannot afford to offer huge discounts to clients as the lockdown stretches on.
About two months ago, Chennai based co-working company AtWorks was a go-to spot for startups and Small and Medium Enterprises (MSMEs) who would lease a temporary workspace at one of the five sprawling properties rented by AtWorks. At a cost of about Rs 6,000-8000 per person for a month, it was a good deal for startups who sought a ready-made workplace which offered them flexibility to sign up for a short amount of time.
But a lot has changed in the last two months. With India, along with the rest of the world facing the COVID-19 epidemic, companies are struggling to stay afloat in the ensuing lockdown.
“In terms of our membership retention, we are close to about 60 percent of our members who have continued. About 50-60 organisations are continuing with us. We have had a couple of people pause memberships. Of that 60 percent are people who are also saying that they intend to come back also, they just need sometime.”Ashwin Shankar, Co-Founder AtWorks
Businesses Drop by Over 30 Percent
With most companies either still shut or opting to have employees work from home, the demand for co-working spaces has taken a massive hit. In some cases, business has dropped by over 30 percent.
Arjjun Chander, the founder and MD of Karya Space says the impact was the worst in March 2020, when the lockdown began. Karya Space lost about 50 percent of its leads around March and early April with existing clients choosing to exit. The situation has, however, begun to improve since the third week of May.
To safeguard their business meanwhile, Karya Space offered heavily discounted invoices for the months of April and May.
“Unfortunately, only very few have paid so we are also working backwards to see how to continue to support the bulk of our existing clients who couldn’t pay us for April, May and maybe now in June. We are hoping for the best and are still following up with our clients.”Arjjun Chander, Founder & MD, Karya Space
Mumbai based co-working company, The Playce, has been completely shut down since the lockdown. Founder Gargi Shah said, “Fortunately, we have customers who use our “Business Address Service” (Virtual Office Solutions), so we do have a trickle of revenue flowing in.” The company has waived all invoices of the months during the lockdown and won’t be billing any of their customers.
My Playce is slightly at ease as they have partners and vendors who let them delay their payments. Not everyone, however, is as lucky.
Is Waiving or Re-negotiating Rents an Option?
Most co-working space owners have been forced to offer discounts on rents to clients in a bid to retain them. This isn’t easy when you have to pay your own rent at the end of every month.
As Karya Spaces founder and MD, Arjjun Chander points out, “We are hit very badly as we are obligated to our landlords as our spaces are all leased. We are still in good terms and negotiating with our landlords on the same as everyone knows these are extremely trying times and especially any real estate service business like co-working is being hit on both the buy and sell sides of the business.”
Ashwin Shankar of AtWorks said while his company hasn’t revised its rates permanently, discounts of up to 20 percent have been given in some cases for the next few months. “We have told the teams not to expect us to give huge discounts today because we also have fixed costs that we can’t fully waive. But if they are willing to work with us, we are willing to give you a slightly longer-term structure of discounting in terms of how you want to work,” he said.
Stating that rent waivers are a complex issue, the Indian Workspace Association that advocates the position of the flexible workspaces industry, said that there is no ‘one size fits all’ approach to the matter.
“Each flexible workspace operator is addressing each case on an individual basis and would like to state that our members have been very supportive. Our members appreciate the commercial constraints that we are facing as an industry and understand that we have been a part of both their growth strategy and their commercial real estate strategy.”Vikas Lakhani, Member, Indian Workspace Association.
For now, most co-working players are trying to stay afloat by cutting down on manpower, paying partial salaries to employees and consolidating their spaces.
A Silver Lining in the Future?
Things may not remain this gloomy for the co-working industry in the near future though. Experts and companies themselves are cautiously optimistic of the tides turning. Karan Singh Sodi, Regional Managing Director, Mumbai - JLL believes that the demand for co-working spaces will only increase moving forward. There are two key reasons for this.
“One, flexibility of not spending a single rupee on the fit-outs because it is a furnished solution. Two, flexibility of walking away from the contract anytime. The beauty with these co-working players is that you can take a one month contract, a 15-day contract or a 3 month contract unlike your conventional deals where you have to sign a 5-year contract and you are committed.”Karan Singh Sodi, Regional Managing Director, Mumbai – JLL
Players in the market too, believe this advantage is what would set them apart from other commercial real estate owners who offer locked-in contracts. “The economic volatility that COVID has created has employee strengths go up and down. So hence, the flexibility aspect of per seat costing by co-working spaces will help in this metric as well,” said Arjjun Chander.
Also, working from home permanently would not be easy.
“In a city like Mumbai, with tiny apartments having families with kids & parents, WFH (Work From Home) is not a practical solution, mainly because of low productivity (whoever has been able to work with kids playing havoc around and parents debating over which news channel to watch?)”Gargi Shah, Founder, The Playce
Striking a balance between a part-time work from home and part-time working from office setup would be a preferable option for corporates adds Gargi Shah. “SMEs who so-far worked from their individual (rented) offices, are now looking to down-size. Since office cost is one of the higher fixed costs borne by many businesses, cutting down on that will make financial sense,” she said.
Social Distancing in the Co-Working Space
Keeping in mind the rules and restrictions imposed at workplaces in a post-COVID-19 world, these office spaces will need to make certain drastic changes to their layouts and structure. Adhering to social distancing norms, AtWorks has reduced its occupancy by 20-25 percent. While before the lockdown about 300-350 people would be seated in about 24,000 sq feet area of their three spaces, this will now be reduced to about 220.
“As people get back to business as usual, companies will need to take in account that employees will put a premium on health & safety on their workspaces, to the point that it could turn into a dealbreaker. In such a scenario, we could see smaller teams distributed across offices. In the long run, all of these changes will transition companies towards favouring remote working as a workspace solution.”Vikas Lakhani, Member, Indian Workspace Association.
Bearing hygiene and safety in mind, most co-working spaces have stopped pantry offerings, such as snacks, coffee and other perks that were earlier offered as part of the package.
While The Playce has decided to impose a ‘No visitors’ policy, Karya Space has come up with their set of guidelines. “We as a space managers will restrict entry in the main entrances by temperature checking and asking people to dispose their gloves if they are wearing any before they enter. Additionally, we will be doing surface disinfection on doors, desks etc every 2 hrs and no one without masks will be allowed to work inside the space,” said Arjjun Chander, Founder & MD, Karya Space.
But some co-working companies are planning further ahead and pivoting from their existing business model to bounce back from the losses incurred and look at diversifying their interests.
“The virtue of being more entrepreneur and startup focussed, we are looking to diversify how we operate from a more generic co-working to a more incubation-oriented approach. We are going to be pivoting a little bit away from the traditional real estate model to more value around how you build a business.”Ashwin Shankar, Co-Founder AtWorks
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