April 2018

Gargi Shah is the co-founder of one of Mumbai‘s first coworking spaces. When she opened The Playce in November 2012, the coworking concept was practically unheard of in India. Gargi spent many days dreaming up ways to explain what she did to her grandmother, who still believes that her granddaughter rents out offices for a living. The Playce has completed five eventful years – a proud home to creative, entrepreneurial and even outlandish co-workers.

We spent some time talking with her to get her impressions about running a coworking space in one of the biggest, densest and fastest developing city in the world.

We use to claim coworking is all about community. Some players say tenants just appreciate the flexibility and a convenient environment. How do you see it?

Coworking is NOT just about the community. Customers come with different goals. Some are looking for a productive office space, some are looking to find like-minded people, others for an affordable setup still, others choose coworking for the unprecedented flexibility it provides. 

Coworking is NOT just about the community. Customers come with different goals.

Having a strong community in a coworking space makes the space attractive, but it is one of the many things that space offers. It can be one of the best ways to retain customers, especially teams.

Is Coworking just a smart Real Estate game?

Coworking is generally much more than simply a Real Estate calculation. There are community, flexibility, affordability and a host of other useful services offered to the customer.

That said, there are many cases where coworking is a way to leverage non-premium properties. In these cases, it starts with a smart Real Estate Game. The premise in question is typically not a premium property for a variety of reasons – location, floor plan, market conditions etc. This makes it tricky to rent out the entire premise to a single lessee.

The owners of such Real Estate premise have come to realise that coworking can give them a quick-fix to their rental requirements. Running a coworking space is a clever idea because the premise generates at least some revenue (even if it is less than market rent) instead of lying vacant. Coworking customers are looking for affordable workspaces even if it means that they have to compromise on certain other parameters. It’s a win-win for both the parties.

Mumbai is one of the biggest and crowdiest metropoles in the world. Coworking is booming. Is community less important in big cities?

The community is just as important in the big cities, perhaps even more so because the coworkers (entrepreneurs, startups, freelancers, etc) are working in a highly competitive market. They need all the support and encouragement they can get. It certainly helps them to know that there are others like them who are sticking their neck out for their idea. The support of the community and kindred souls is invaluable when an entrepreneur is starting out. 

The community is just as important in the big cities, perhaps even more so because the coworkers are working in a highly competitive market.

On the flip side, a coworker has many more options in a big city – cafes and restaurants (long the ‘offices’ of lone warriors), extra unused desks in traditional offices, apartments etc. This makes it harder for coworking spaces to retain customers.

How do we fill in coworking spaces in India?

India is rather diverse and most coworking spaces have their own niche offering. Some offer unbeatable prices, some offer creative interiors, some have simply located themselves in a high-demand location and some have an organic community built over a period of years. In Mumbai, there are diverse demographics who need a coworking space to suit different needs. It is mainly an overwhelming demand for flexible office spaces that drives the coworking market of Mumbai.

Most coworking spaces have their own niche offering. Some offer unbeatable prices, some offer creative interiors, some have simply located themselves in a high-demand location and some have an organic community built over a period of years

Fun, conviviality, learning, networking… Is it only for startups or Gen Y and Z?

Oh no, not at all. In all our workshops and events we have seen incredibly large participation from established freelancers and folks in their forties, fifties and even a few in their sixties. One would expect that startups and Gen Y/Z folks would be a big part of the fun and networking, but more often than not they don’t have the time and inclination to get out of their personal space and explore. They are buried in their startup challenges and personal journeys. It is the 30s and over a crowd that tends to have a more long-term perspective and are an integral part of the fun, learning and networking side of things.

One would expect that startups and Gen Y/Z folks would be a big part of the fun and networking, but more often than not they don’t have the time and inclination to get out of their personal space and explore

 

 

 

Rialto is a sales and marketing software as a service offering CRM functionalities tailored to the commercial real estate industry. This “broker portal” allows operators and brokers to exchange inventory and enquiries for space. The rise of the demand for coworking and flexible workplace offering might hit dramatically the traditional intermediaries within the workplace world.

We interviewed Nicolas Kint, the founder of Rialto, to get his impression on how big the change might become and whether coworking operators and brokers can one day understand one another and become partners.

Hi Nicolas. Can you introduce yourself as well as Rialto?

I joined the industry in 2013 as director of a business centre group in Ghent, Belgium. When next supporting the launch of a residential property inspection software solution to the market in 2014, surprisingly enough I was contacted by several brokers and operators of commercial property portfolios. I realised the commercial property industry was underserved by the market. Tight budgets and a need for vertically integrated processes made the market unattractive to the large players like Microsoft, SAP or Salesforce. That’s when I decided to found Rialto. In March 2015, we incorporated with the support of Pi-Labs in London.

The rise of coworking and flexible workspaces is told to be disrupting the office market and its traditional long-term lease contracts. Do you see that happening?

The imminent growth of flex workspace is driven by a couple of factors which today coincide. While the potential of coworking and flex workspace has hardly been underestimated, the timing for this inflexion point was hard to predict. I’m not sure whether we should call this trend “disruptive” to the conventional office leasing market though. There are several examples of specialised office space asset management teams, which have – many of them already for years – been experimenting with flex workspace concepts, typically with very low ROI. I believe that incumbents who got their timing right will have been making the right investments to capture the bulk of this growing market.

Intermediates such as real estate brokers used to play a big matchmaker role between property owners and tenants. Do you see them able to adapt to the new reality of flexible service based office? Or will real estate brokers disappear?

The role of intermediates is changing, and those firms with a strong positioning supported by a long-term vision, supportive for intrapreneurship, will still be able to create a lot of value going forward. To answer your question whether they have a role in the new reality of flex workspace, I definitely believe so. Employers will have to deploy a range of workspace solutions. This will most likely always be a mix of conventional and serviced real estate. This new reality creates a clear demand for professional advice by both landlords and tenants.

Employers will have to deploy a range of workspace solutions. This will most likely always be a mix of conventional and serviced real estate.

Coworking, flexible and social workplaces. Who can help them to fill in their space? Can they rely only on themselves?

I like to compare this to the hotel market. You have “independent” players versus the “international brands” or “houses of brands”. Your location(s) might compete with Spaces from IWG just as the boutique hotel around the corner competes with Sofitel from Accor. In terms of direct sales, the large players are hard to fight. They can leverage their brand and have built well connected corporate sales teams. Of course, you can beat them in leveraging your community and word of the month, but also in building your indirect sales partnerships with specialised brokers.

Your location(s) might compete with Spaces from IWG just as the boutique hotel around the corner competes with Sofitel from Accor.

Is there a difference between countries, from what you see?

Well, the more mature a market, the better the existing solutions available, the more experienced and better informed the market is. It’s no surprise markets like London, Paris and Amsterdam count several strong brokers and advisory teams in flex workspace.

It’s no surprise markets like London, Paris and Amsterdam count several strong brokers and advisory teams in flex workspace.

Brokers are paid on commission, usually, a percentage of the first paid rents, for instance. What can be their business model, tomorrow, if the commitment to a coworking space is no more than a month?

The flex workspace market has become competitive. If you’d ask me, I’d make sure the “carrot” for the broker is clear. Although the commitment could be restricted to a month, you expect the new customers to use the space for months even years. That’s the interest of building revenue models which allow managers to quickly calculate the Net Effective Rent corresponding such agreements in order to help them understand what cost of acquisition is affordable.

What about the role of online direct matchmaking platforms which are taking a bigger and bigger importance? They position themselves as kind of Booking.com of meeting rooms and office. Can’t they make real estate brokers an obsolete profession as well?

I’m happy you name Booking.com. When they started out 20 years ago, no one in the industry would have imagined they had the potential to become the dominant force in the market they today are. I’m convinced the office market won’t allow this to happen. Instead, expect a strong level of M&A going forward where some of the larger and more successful incumbents will be able to absorb the digitalisation, flex workspace, smart office trends and build future-proof propositions.

What can be the added value of those platforms in the future? Both for coworking spaces as for startups, freelancers and bigger companies?

The market is massive. Yes, startups, freelancers, large corps, …all of them will continue to take on the workspace. Winners will be those who can afford to specialise.

Do brokers nowadays really understand the full value coworking spaces provides to their members, aside of the square meterage and the location of the space (things such as hospitality, community, network, side services, image, conviviality, etc.)?

If I may, I’d not necessarily question the brokers, but rather the market as a whole. Are we willing to pay for the full value coworking spaces create? If the market is to grow 20% a year, there is a strong need for educating the market on those values you name.

Will it be a new job, you think?

Yes, developing, commercialising and managing flex workspace definitely requires specific knowledge and experience.

GKRE, a UK based flexible workspace specialist, could be a kind of new operator in the market: a matchmaker between real estate owners, on the one hand, coworking and flexible workplace operators, on the other hand. GKRE advises landlords and building owners throughout the UK on their flexible workspace options and opportunities to partner with flexible workspace providers. The company has recently been involved in the merger and acquisition of businesses worth over GBP 40 million, in some 50 buildings.

We interviewed Will Kinnear, Chartered Surveyor specialising in the flexible workspace industry.

Hi Will, could you introduce yourself and tell us about GKRE?

I started as a consultant to Regus acquiring multiple sites throughout the UK on their behalf. Since the creation of GKRE with Douglas Green in 2013, we have acquired more than 450.000 square feet (42.000 m2) of new sites for the UK’s leading operators throughout London and the UK. Clients include operators and landlords across the UK, from major PLCs to independent companies.

The flexible workspace market has grown fast in the last recent years. What are the reasons for this growth, according to you?

The growth of the market has been driven by a number of factors: the demand from occupiers for more flexible ways of working; technology in the form of laptops and mobile phones allowing people to work from anywhere; the explosion of small businesses and freelancers. Traditionally, flexible workspace operators were quick to seize on the demand for flexibility and, by offering something alternative to the traditional leasing model, grew their portfolio of sites steadily on the back of this. In the past three to four years, flexible ways of working have become commonplace for SMEs and even corporates, who have looked to operators to provide them with workspaces that meet their growing demand for dynamic and flexible ways of working. This, in turn, has driven operators and property owners to expand their offerings exponentially to the extent that the flexible workspace sector is no longer a secondary sector in the property market.

 In the past three to four years, flexible ways of working have become commonplace for SMEs and even corporates.

How do property owners look at the flexible model of space renting? Do they come to you? If so, why?

Property owners have had to look at the product being offered by operators given that demand for flexible working from occupiers has continued to grow. We are actively being approached by landlords and developers who want to understand better how the model works and how they can make the most of this growing trend. This is challenging the way property owners look at what they offer tenants.

Would you say that commercial property owners are starting to consider to partner up with flexible workspace operators, the same way property owners deal with hotel chains?

Yes, they are. Historically, flexible workspace operators have been at the forefront of this growing sector. However, over the past two years, there has been a distinct increase in property owners and developers wanting to enter the sector. Flexible workspace operators traditionally have taken lease deals where they have control over the space within a building and their clients. Partnership and management agreements between property owners and operators have allowed property owners to share in the upside and desirability of the sector while leaving the operator to the day-to-day running of the centre. We are currently working with a number of property owners who are considering their options. These may include working with an operator on a partnership basis or running their own operation.

Partnership and management agreements between property owners and operators have allowed property owners to share in the upside and desirability of the sector while leaving the operator to the day-to-day running of the centre.

Is the shared revenue model the future, in this kind of partnership?

It may be in some circumstances. Some property owners have assets within a portfolio that simply aren’t set up to enter into a shared revenue model. They will, therefore, have to let space on a traditional basis to an operator so that they are able to fulfil any requirement they have to provide flexible workspace within their mix of properties. They can also, of course, choose to run their own operation under their own brand. The shared revenue model will be attractive to both property owners and operators in some locations where both parties see a mutual benefit to providing a flexible workspace product. Going forward, we see opportunities for all kinds of models including leasehold, freehold and partnerships arrangements. We expect plenty of variety throughout the UK, and the model chosen will be driven to a large extent by the location, the property owner’s view of the market and the operator’s desire for a foothold in a particular area.

The model chosen will be driven to a large extent by the location, the property owner’s view of the market and the operator’s desire for a foothold in a particular area.

Some real estate owners fear that partnering with flexible workspace operators means they will lose direct contact with their traditional tenant customers. On the longer term, it could be detrimental to them, as they will be reliant on the flexible operator. Are they right?

This is a genuine concern for some owners as the end user will usually only have day-to-day contact and dialogue with the operator. To get round this and retain control of and connection with the end user, several property owners are looking to run their own operations, or, partner with operators but run the centres under their own brand.

Would you recommend property owners to create their own flexible workspace customer brand?

Possibly, but in every case, we would look at a property owner’s requirements in order to give them the best possible advice. Depending on what product they want to provide, the levels of service make these operations highly management intensive and for this reason not every property owner has the setup or desire to do it themselves. In these instances, we will work with a property owner to ascertain what options are available to them access the flexible workspace market.

Business Centres, Coworking, startup-friendly environment… How do you deal with the different services and positioning in today’s market?

Every operator thinks of their business in a different way and will position their product in the way that they best think sells it to potential occupiers. Often, an operator will offer a blend of options within a centre in order to maximise revenue.

What are your real estate predictions for the flexible workspace market in the UK the next five years?

We believe the market will continue its excellent growth. We expect to see more property owner-based operations in the market along with more all-inclusive managed products as landlords offer further flexibility in order to meet what occupiers are looking for. The new accounting rules coming into force in January next year are already impacting on demand as companies seek to take long-term leasehold premises off their balance sheets. We also expect to see retail and corporate occupiers offering flexible space. Industry data suggests that flexible workspace could account for 10% of the occupier market within 10 years across the UK.

Industry data suggests that flexible workspace could account for 10% of the occupier market within 10 years across the UK.