What does the fall of WeWork mean for the fate of coworking spaces in India?

The dramatic fall of WeWork, the world’s largest coworking firm, has put the spotlight on the future of managed workspaces globally and in India.

Once valued at a staggering $47 billion, the unicorn is now cash-strapped thanks to its reckless expansion and diversification. In the July-September quarter of 2019, WeWork posted losses of $1.3 billion, up from $497 million a year ago. Further, the US-based company’s move to drop plans to launch an initial public offering in September saw its valuation fall to $7.8 billion. Now, the Softbank-backed company is scaling back operations and cutting jobs.

While WeWork’s India operations, which are run by the Bengaluru-based real estate company Embassy Group, have so far remained unaffected, the fall of the giant is likely to have an impact on the overall sentiment of the sector. After all, WeWork’s early success had inspired entrepreneurs in India to experiment with flexible workspaces.

Today, India is the second-largest market for flexible workspace in the Asia-Pacific region after China with over 1,000 co-working spaces. The cumulative area under coworking spaces in India currently stands at 6.9 million square feet, according to the real-estate consultancy JLL.

The impact

Given that coworking spaces in India are in a nascent phase of growth, the failure of a pioneer will weigh on investor sentiment in the short-term, say industry experts. “WeWork has 26 coworking spaces operating in India and if the global giant undergoes a hit, it will definitely impact the valuations and fund-raising plans of coworking players,” said Sanjay Choudhary, CEO and founder of Incuspaze, a Gurugram-based coworking space.

Others agree. “The current uncertainty might affect investor sentiment and have some impact on funding. However, we anticipate this to be a short-term effect,” said Amit Ramani, founder and CEO at New Delhi-based coworking space and virtual offices solution provider, Awfis.

Investors tightening their purse strings in the wake of WeWork’s debacle could also spur consolidation in India’s coworking space. “In 2018, One Co.Work acquired IShareSpace and AltF CoWorking went pocketed Daftar India. This acquisition trend will continue,” said Shobhit Agarwal, managing director and CEO of Anarock Capital, a Gurugram-based real estate services company.

Some experts believe that the larger coworking players in India may need to revisit their existing business models to make sure they’re not making the same mistakes as WeWork.

Focusing on the basics

WeWork’s ongoing troubles serve as a stark reminder for businesses to stick to the basics, acknowledge leading coworking players in India. It is a great example of how a business should operate.

“Sustainability is the key to survival,” said Choudhary of Incuspaze. “Funds are important for startups to advance their business. But it is imperative to ensure that the process of fundraising is for the growth of the business and not for its survival.”

Choudhary says he will be more thoughtful and practical while signing up inventories to avoid getting into the trap of oversupply. He says there have been instances in India where some companies signed up for large inventories in anticipation of massive demand, but could not find customers as they had overestimated the market.

There are other lessons too. Spreading oneself too thin in search of quick growth can prove fatal. Diversifying into non-core areas is seen as one of the key reasons for WeWork’s failure. The New York-based company had multiple interests outside coworking space including construction and education. For example, it set up WeGrow, an educational institute without any prior experience in the sector.

“WeWork’s debacle is a reminder that one should first focus on one’s core business before branching out into sub-businesses,” said Akshita Gupta, co-founder and chief marketing officer at ABL Workspaces, a coworking firm based out of New Delhi.

Also, following the WeWork crisis, players would now evaluate their working contracts more prudently. For example, to mitigate leasing risks, many companies will now look to shift to a revenue-sharing model instead of leasing. “Here, the landlord makes the initial investment for office fit-outs for the coworking player and thereafter, becomes his business partner. This is proving to be the least risky approach, as both parties share profits based on pre-determined percentages,” said Agarwal of Anarock Capital.

Growth on track

Despite setbacks at WeWork, Indian coworking players are optimistic about growth in the long-term. With the millennial workforce evolving, over 13 million people are expected to work out of coworking centres by 2020 in India. Many corporate firms are expected to allocate 10% of their office portfolio to agile workspaces, according to JLL India.

“We at Awfis, have a strong expansion plan for the next three years along with a robust capital base to support it. We intend to go for an IPO in 2022,” said Ramani of Awfis.

From 30,000 coworking seats in 2019, the company is looking to reach 200,000 seats in the next three years. For expansion, Awfis is banking upon demand for coworking space coming from tier-2 cities. Last year, it opened a coworking facility in Chandigarh and aims to expand into cities such as Jaipur, Ahmedabad, Bhubaneshwar, Kochi and Indore by 2020.

Meanwhile, Incuspaze, which started operations in 2017, is tapping into growing startup culture and rising interest from multi-national companies, which are keen to access flexible workplaces in tier-2 and tier-3 cities.

“MNCs are keen on shifting their base to coworking spaces in search of easy access to fully managed workplaces that help them save money, provide employees flexibility of location and time,” said Choudhary of Incuspaze. The company currently has coworking assets in Gurugram, Delhi, Mumbai, Kochi, Lucknow, and Indore. It has additional coworking capacity coming up in Hyderabad, Thiruvananthapuram, Bengaluru, Jaipur, Pune, and Coimbatore.

Like her peers, Gupta of ABL Workspaces, too, is optimistic about future expansion as she sees bad news coming from WeWork akin to temporary speed breakers. Her company at present operates 3,000 coworking seats in Delhi and plans to reach 15,000-plus seats by next year.

“The market is expanding because firms big or small are realising that coworking is in a way promoting sustainability, which is the need of the hour. Shared use of workplace, natural resources is the new future,” she said.

This article first appeared on Quartz.