Benefits of coworking business model

The coworking / flexible office / managed office industry has taken off in a big way in India, clocking more than 40% growth year on year. On of the main reasons for this kind of growth is that this business model is a win-win for all stakeholders involved. Here, we analyse the benefits which accrue to three principal stakeholders; the clients, the landlord/property owner and the coworking company

Benefits of coworking business model

Benefits to the clients

From individuals to large corporate teams, a variety of clients occupy coworking and managed office spaces. This provides them with immense benefits

  1. No upfront capex: the furniture, fixtures, fittings and amenities are provided by the coworking company. As a result, there is no upfront expenditure to be made by the clients. Considering that this is a huge expense, the cost savings for clients are sizable
  2. No execution hassles: furnishing an office is a massive headache as most of you might have experienced. A coworking company takes up this headache upon itself. With a dedicated team of vendors, these professionals are able to execute this seamlessly. As a result, for the client, moving into their new office space becomes a very pleasant experience
  3. Single point contact and payment: the coworking company provides its clients with all facilities needed to work. Electricity with backup, internet, housekeeping; everything is handled by the coworking company. From a client’s perspective, there is just one party they need to interact with and pay; the coworking company. This makes the office functioning seamless for the client
  4. No operational hassles: from getting housekeeping staff to handling maintenance, the coworking company handles it all for the clients. This eliminates operational hassles for the clients. They do not have to hire extra people for office admin work and can concentrate on their work fully
  5. Flexibility: unlike a conventional office, clients have complete flexibility to increase or decrease their office space requirements in a coworking or managed office setup. The flexibility this coworking companies give to its clients is unparalleled.
  6. Better amenities: coworking companies provide clients with a host of amenities that the client cannot have in his individual office. From a tea-coffee café to breakout areas to gyms and sports facilities, coworking companies can provide amenities to clients which greatly improve their productivity
  7. Networking: in the coworking set-up, a variety of clients work in a single centre location. This gives rise to excellent networking and business development opportunities
  8. The cost advantage: as aggregators, coworking companies have significant economies of scale. From rent to furniture to internet charges, the coworking companies can negotiate prices much better than individual clients. Some part of these cost savings are passed on to clients too, resulting in extremely compelling and competitive pricing from the clients’ perspective.

Benefits to the landlord/property owner

Most of the coworking companies in India work on an asset-light model, where they enter into a long-term lease with the property owner, furnish the property and let it out to clients. This arrangement is highly beneficial to the property owners too.

  1. Single client: from the owner’s perspective, the coworking company is the only client it has to deal with. This removes the hassles and admin issues associated with dealing with multiple clients
  2. Professional engagement: unlike individual tenants, coworking companies are in the business of creating and providing office space. The professionalism associated with this reduces a huge number of hassles for the landlord.
  3. Continuity and occupancy: once a coworking company leases the property, from an owner’s perspective, it will always be fully occupied. There is also no hassle of one tenant leaving and finding new tenants for the owner
  4. Improves saleability: a leased-out property is much more saleable than an unoccupied property. A ‘pre-leased’ property becomes a very attractive proposition for prospective buyers and the saleability of such properties improve
  5. Financing: once a property is leased by a reputed coworking company (usually for a 5–7-year period), the landlords can unlock capital through the lease-rent discounting route offered by banks and NBFCs. This freed up capital further improves returns for a landlord/property owner.

Benefits for coworking companies

  1. Asset-light business model: since most coworking companies lease office space (and do not buy it), the business model becomes asset light, requiring lesser capital and thereby becoming more efficient
  2. Scalable: due to the asset light nature of the business, it becomes highly scalable. With proper capital allocation, efficient and profitable scalability is possible
  3. Good margins and ROCE: a well-run coworking business can do PBIT margins in the high teens and much-above-average ROCE

 

When a business model is a win-win for all stakeholders involved, the longevity of that business model can be very high. This is what we are seeing happen in the coworking / managed office space. The industry is off to a great start and things are getting better!