The smaller co-working operators may just not be able to withstand the crisis caused by COVID-19 and pandemic and might wither within 2020. As per a recent report by Knight Frank, at least half of the stock amounting to 3.2 million square feet (msf) will be vacated by their operators within 2020 as the small operators will fade away.
Knight Frank’s ‘Co-working: Surviving COVID-19’ states that low occupancy and increasing cost are expected to make coworking operations unviable for fringe players and would therefore, force them to vacate their low performing offices, Money Control reported.
There are over 250 co-working players operational in India today, with an estimated 75 – 80 percent of the market in the top eight cities being dominated by the top 10 players. By the end of 2019, co-working players occupied about 25.45 msf (2.4 mnsq m) stock which constituted about 3.4 percent of the total office stock.
Smaller Co-Working Players Will Shrivel
As of now, approximately 25 percent, that is 6.4 million square feet (msf) of the total 25.45 msf co-working stock in the top eight cities is operated by small players. However, this coronavirus pandemic might end up wiping them out of existence.
MSMEs and startup tenants form about 25-40 percent of the total tenant rosters of prominent co-working operators while in case of smaller players, the share is sometimes up to 60 percent of their portfolio. Due to the dual effect of economic slowdown as well as rising preference for work from home among both employers and employees, the industry is expected to see a significant exit of such start-up tenants and smaller occupiers.
Mid-Sized Co-Working Player With Corporates Will Remain Unaffected
It is mentioned further in the report that co-working operators with more than 15, 000 seats and having major share of large enterprise clients will be able to sail through the COVID-19 crisis. However, it will still not protect them from having to re-negotiate per-seat costs and renewal terms.
Renegotiations Of Contract Terms
Post lockdown period will be all about renegotiations. Co-working operators are also renegotiating rents downward or asking for a temporary moratorium on rents from mall. Going further, co-working players will increasingly look to acquire office space on revenue or profit-sharing terms to reduce their own fixed costs and improve their financial resilience in the event of a downturn.
Flexibility Will Be Key
Post lockdown, co-working operators need to offer more customised Managed Office model that will allow occupiers to pick and choose the amenities they pay for and nothing more. The uncertainty in the economy will continue for some time due to which more and more companies will look for flexible options that they can adapt to and fulfil their changing requirements, without capital expenses and shorter lease terms.
Here is more on COVID-19 effects on Indian real estate.