In 2021, the coworking industry took a hard hit due to the second wave of the Covid-19 pandemic. However, as we move into 2022, the coworking spaces are poised to make a comeback as employees grow weary of working from home and organisations move away from large and centralised offices in favour of distributed workspaces.
2021 was a roller coaster year for the coworking industry. It started with lots of excitement and promise for commercial real estate as a whole when companies and professionals returned to work after the first phase of the pandemic. The Covid-19 related uncertainties that had plagued the coworking space in the previous year seemed to be fading away and made way for a brighter 2021.
The occupancy for most coworking operators improved from 20-35 percent during July-Dec‘20 to 60 percent in the Jan-March‘21 quarter. But all this was short-lived. The beginning of April‘21 saw the re-imposition of strict lockdowns in Mumbai and Delhi NCR due to the second wave, with the southern cities of Bangalore, Hyderabad, and Chennai being impacted just a month later. Thankfully the second wave was short-lived, and economic activities resumed around June‘21. The coworking spaces mounted a meaningful recovery in the second half of 2021, with occupancy levels touching an impressive 80-85 percent in the Oct-Dec quarter.
As we move into 2022, the industry continues to experience good demand for both coworking spaces and managed office spaces. In my opinion, a crisis is the best period to rethink and reimagine the future. This statement came true in 2021 as we saw the emergence of several new workplace trends across both the global and domestic markets. A few trends such as daily temperature checking and workplace sanitisation are slowly making way for new trends that are likely to shape the coworking industry in 2022.
Outlook No.1: Coworking space to Account for Over 20 Percent of All Real Estate Absorption
Coworking spaces will play a vital role in the future of the real estate industry; currently accounting for 12-15 percent of all real estate absorption, this percentage is likely to touch 18 percent and then 21 percent in the calendar years 2022 and 2023 respectively, as a majority of corporates contemplate shifting from traditional leasing to flexible workspaces. The coworking industry will continue to grow at 20 percent to 25 percent for the coming half a decade or so.
Outlook No.2: Movement from Centralised Offices to Distributed Coworking spaces
In my opinion, mid to large-size companies will move away from large and centralised offices in favour of distributed workspaces. The highly transmissive Delta variant laid bare the vulnerabilities that these workplaces hold, moving with extreme rapidity from just a single member/employee of a family/office to infect everyone in close proximity. Such an outbreak in an office can severely impact business continuity, causing loss of revenue and momentum. To prevent such a scenario, companies are actively contemplating moving from single large offices to de-centralised or distributed flexible offices.
“Coworking spaces will play a vital role in the future of the real estate industry; currently accounting for 12-15 percent of all real estate absorption, this percentage is likely to touch 18 percent and then 21 percent in the calendar years 2022 and 2023 respectively, as a majority of corporates contemplate shifting from traditional leasing to flexible workspaces.”
As not all companies can open 4-5 smaller offices in different parts of each city on their own, they will rely on coworking operators to provide this service. By using coworking spaces, companies are able to save valuable time and effort, and also provide comfort to their employees, who will no longer have to cover large distances en route to work.
Outlook No.3: Large Companies & MNCs Will Behave Like Mid-Sized Organisations
With the uncertainties and unpredictability of the past two years, it has become difficult for corporations to plan their operations accurately in advance.
The two Covid-19 waves have had a negative impact on organisations of all sizes and scales. Large companies and MNCs have seen their revenues stagnate, and there is pressure on them to conserve cash and stay competitive. They are looking to optimise all expenses, with office operating costs being one of the most substantial expenses incurred (second only to manpower and marketing), accounting for approximately 8-12 percent of the total cost for most companies.
Large companies will move away from traditional long-term leases to more flexible workspaces. By doing so, they can avoid being tied up in 3–5-year lock-in periods. Moreover, they gain the flexibility to increase or decrease capacity in line with emerging business dynamics. This behaviour is similar to that of a mid-size company that is continuously looking at cost optimisation.
Outlook No.4: Work Near Home or Neighborhood Coworking Space to Drive Growth
WFH started as a big new trend in 2020 but started losing its utility over the course of 2021. Lack of social connection and the blurring of lines between work and personal time led to frustration and a loss of productivity. WFH is an Indian household that is quite different from that in the developed world, owing to a multitude of factors like the Indian joint family system, the smaller size of Indian houses, lack of suitable (or designated) ‘work’ area, etc.
On the flip side, employees are reluctant to commute long distances via public transportation systems like metros and buses, or even in shared cabs. Therefore, commuting long distances on a daily basis just to reach the workplace is effectively ruled out for the next 12-18 months.
Employers have sensed this hesitation, and have allowed employees to operate from a coworking space close to their place of residence. This practice, being followed by The Office Pass (TOP), is popularly known as ‘neighbourhood coworking’. Employees are able to reach their office in short durations of time, and without needing to use public transport, which saves time and also prevents the spread of the virus, making it a win-win situation. The concept of neighbourhood coworking is likely to get accentuated in 2022, as more people realise the advantages of working near home.
Outlook No.5: Managed Offices Will be Favored by Large Corporations
A managed office is a workspace tailored to a client’s need but is offered and managed by a third-party operator. There is one major difference between a managed office and coworking space; in a managed office, the client gets identified before the office, and in the latter, the office is readied before the clients are identified.
Unlike a coworking space where multiple companies work under the same roof, managed offices are dedicated spaces for a business that reflects its brand identity. A managed office is normally preferred by large corporates, as it offers privacy and complete autonomy to its occupant. Post the second wave of Covid-19, companies wanting to move away from traditional leases are finding the most optimal solution in the form of a managed office. A managed office saves an organisation’s valuable time and cost associated with the sourcing, fitting, and running of office operations. Continuing down the current path, managed offices are likely to emerge as the preferred option for large companies and MNCs in 2022.
“Unlike a coworking space where multiple companies work under the same roof, managed offices are dedicated spaces for a business that reflects its brand identity. A managed office is normally preferred by large corporates, as it offers privacy and complete autonomy to its occupant.”
Although Covid-19 has caused massive disruption in the commercial real estate segment, the long-term outlook for the coworking space & managed office industry is likely going to be positive. The coworking industry is likely to grow by 20-25 percent in 2022 and the years to follow, while the umbrella of managed offices, distributed offices, work near home, and affordable pricing are likely to exhibit strong trends in 2022 and beyond.
Market presence: 10 Coworking Spaces & Managed Offices across Delhi NCR area
Employee growth: 20 percent
Employee count: 30 employees
Workforce pie: Sales and Business Development (45 percent), Office Administration (35 percent), General Management (10 percent), Leadership (10 percent)
Hiring pipeline: Currently 5 open positions in Sales and Office Administration
Business operation: Coworking Spaces & Managed Offices Company