Co-working spaces – the saviour of Real Estate.
We have observed that there is a huge slowdown in the real estate sector in the last few years. But not for long, India’s real estate market is raising up as new sub-segments in terms of co-working spaces and Meet-up spaces have emerged lately.
Experts discussed if there is some scope in the growth of these two segments and if it can revive the real estate market which is slowing down.
According to the joint report released by the JLL – Ficci, The co-working market is already accounted for the 12% of the entire office-leasing sector in the first four months of the year 2019. It was increased by a whole of 4% from the year 2018. Meet-up spaces also offers a whole of 2 to 4 times the higher returns than the traditional residential returns of 2-3%. Experts discussed if there is some scope in the growth of these two segments and if it can revive the real estate market which is slowing down.
The new segments like co-working spaces and other co-spaces or meet-up spaces, have grown rapidly over the last few years. There is a very bright future for the real-estate ahead. The co-working segment is set to offer a vast business opportunities of at least 1 Trillion Rupees and approximately 5.7 million beds by the year 2024. From the levels of 2018, 458 Billion Rupees and 3.8 million beds. The co-working market is already accounted for the 12% of the entire office-leasing sector. This will continue to rise further.
The huge Demand from millennials across India and the rapid urbanization taking place in our cities is already making a strong demand for the emergence of shared rental sectors. While the demand is huge, the supply needed to fulfill the millennials demands is still a challenge. This huge demand from the millennials has made the market fascinating for all the owners, landlords and private equity investors.
The co-working sector is now riding on a maturity curve. Operators or owners in this market are now offering vast formats from entire building to built-to-suit co-working spaces within conventional workplaces.
However, All the stakeholders need to address the vast existing challenges such as issues that are related to data privacy, the conservative approach of the owners of the property and relevant supply across co-working and Meet-up spaces.
Millennial workers driving the rise of Co-Working Spaces
Co-working spaces have disturbed the traditional work environment as it was and it will be continued to be as popular as it is today. The co-working segments have emerged as the 2nd largest sector with a banging 14% share in the over-all leasing sectors in India in the year 2018. We see that the concentration and the rapid growth of co-working spaces will be more intense in Bengaluru, Mumbai and Gurgaon with occupancy levels reaching almost upto 8 to 9 million square feet by the year 2021. As the Co-working spaces is a flexible work space segment, there will be an increased strategy alliances and consolidations between the owners and operators with the newer models emerging.
The driving force behind the rise of Co-Working spaces are the millennial workforce moving to new cities to earn and live a good lifestyle. Both the landlords and the operators gain out of this new model and earn a lot of income, As the landlords at least are able to lease their unsold inventory by which higher yields are generated. The operators also make a good amount of profit at the operating level.
The Concept of Co-work space is attractive for both the occupants as well as the owners.
Co-Work spaces gives a higher rental yields for a loosens inventory. There is plenty of Unsold commercial as well as residential inventories which now has a keen patron which is in the form of co-working and Meet-up space concepts which recently was unorganized or were almost non-existent in India.
Now, all the developers have an option to lease out their unsold inventory to an organised operators who are more than happy to offer them competitive yields. We expect maximum developers joining hands with startups and generating good yields.
The rules of the game which still needs to be set by the regulators. Eventually will be a sign of support to the real estate market where it will be seen in the medium to long term, as the segment slowly matures.
We would suggest the Investors to look at such opportunities from a cash flow perspective since the leases tend to be long term which generates a lot of income. Co-working space as an asset class, provides much higher rental yields as compared to the traditional on residential properties with the possibility of an upside.
Co-working spaces and Meet-up spaces has already seen a lot of support from domestic as well as global investors Internationally who are interested to participate.