Omicron forces coworking space providers to sweeten deals

Coworking space providers are increasingly offering more flexible subscription plans to occupiers to stay competitive in a highly evolving hybrid work model amid uncertainties tied to the Omicron coronavirus variant.

That is a smart move from the sector, which saw a huge drop in leads and enquiries in the early days of the pandemic in 2020 when most corporates adopted a cautious approach.

Occupiers have grown sceptical of making long-term commitments since the beginning of the latest outbreak of Covid-19 tied to the highly transmissible variant.

“We see that all occupiers are now asking for contractual flexibility - it is clearly written in the agreement what will happen in case of the next lockdown,” said Awfis Space Solutions Chief Marketing Officer Sumit Lakhani.

Also Read | Flexible workspaces see increased demand from smaller cohorts

Some coworking spaces have even started offering discounts in return for an extended lock-in period. “We have started giving flexibility in terms of smaller lock-in periods and a lower one-time termination fee, and are open to client’s requirements, which is not available with conventional real estate players,” Incuspaze Managing Partner Sanjay Chatrath said.

Coworking spaces, which used to require a minimum of 200 to 250 seats of demand, are now welcoming smaller cohorts with a need of 10 to 100 seats.

“There is flexibility in terms of the size of the team. Ours is just a 10-15 member team and we could use our coworking spaces on any day of the week,” said Shailly, an employee with architecture firm Beta Makers Lab.

Others are now offering a month-to-month rollover of the lease instead of a fixed lock-in period for the occupier. “This allows the occupier to withdraw from a lease with just a month’s notice,” explained Bappaditya Basu, Chief Business Officer at real estate consultant Anarock Commercial.

There has been increasing flexibility between the coworking space providers and real estate developers, too, to deal with the uncertainty tied to Omicron.

For instance, the flex space providers are themselves making requests to real estate firms to stagger the security deposit over a period of time to reduce their financial burden at the initial phase, Basu added.

With flexibility, it becomes a no-brainer for the occupiers to outsource the entire real estate to workspace managers and opt for a hybrid work model that is economic for the employer and the employee.

“Developers and landlords have been accommodative to the demands of occupiers to facilitate deals with respect to lease tenor, rent-free period, termination clauses,” said Vimal Nadar, Senior Director and Head of Research, Colliers India.

The workspace providers have also switched to a risk-adjusted approach.

“Operators now look at acquiring properties only when they have 50% of demand secured,” said Karan Singh Sodi, Regional Managing Director - Mumbai, with real estate consultancy JLL India.

Such contractual flexibility from all ends is good news for the sector, which is expected to double in five years with a compounded annual growth rate of 15% from 35 million square feet.

Recent deals in Bengaluru include 3M moving its headquarters to WeWork, Morgan Stanley taking seats at CoWrks and Rakuten taking seats at Workspace, Monjima Sen pointed out in a post on JLL’s site, adding these deals “are testament to the fact that the sector’s success is here to stay and on a sustainable growth journey in the city post-pandemic as well.”

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