The commercial real estate industry has had an eventful 2017 with co-working ushering in a new culture of collaboration in the workspace. Flexibility, cost saving and ease of starting an office are some of the most important factors contributing to the exponential growth of co-working spaces. Entrepreneurs, as well as established companies, are known to have saved between 20-30 percent of the costs by opting for a co-working space over a traditional office setup.

Exponential growth

This year has witnessed a massive uptick in the growth of the co-working industry to the tune of 40-50 percent. From just 80 in 2016, the number of such spaces has jumped to a whopping 400 percent to 350 this year. Given this spectacular growth, private equity (PE) firms are betting big on this segment.

Earlier this year, Awfis, one of the country’s largest co-working space providers raised $20 million (Rs130 crore) from Sequoia Capital. Another big name in this space, Smartworks, is also in talks with PE funds for raising capital to fuel expansion. The company is looking at raising Rs100 crore plus apart from leveraging the expertise brought by PE funds.

Domestic players such as Awfis and Smartworks account for a large share of the co-working space market in the country. But international names are also entering this promising segment and offering stiff competition. WeWork, the US-based shared office space behemoth recently forayed into the Indian market and signed an agreement with the Embassy Group to develop a co-working facility in Bengaluru with an investment of $100 million.

Going forward, co-working is expected to dominate the CRE space as the average breakeven period for shared spaces is about 6 months, with more than 90 percent occupancy rates. The sector is expected to receive over USD 400 to 500 million investments and will with a growth rate of 50 percent year-on-year. Experts predict the need for specialized operators in the co-working spaces to deliver high quality services to a cross section of occupiers. The coming year is likely to witness more creative structures in leasing, such as revenue and profit sharing. These improved practices are likely to align the interest of the landlords, operators and occupiers.