Coworking spaces have become a much-sought-after office space model. They are flexible and easily accessible for both large and small businesses, who can use them as incubators to help build new ideas or test product development pipelines. The demand for these is also driving up the overall cost of commercial real estate, pushing up occupancy rates and driving up construction costs. Coworking spaces, therefore, have a direct impact on the overall real estate market, which in turn affects other sectors such as hospitality.
Coworking spaces are not just used by freelancers and start-ups. Many business professionals have adopted this trend to maintain flexible working setups and reduce their rent obligations. Coworking spaces offer them the freedom to come and go as they please; it’s a great way of cutting costs and providing flexibility while also giving them access to work from anywhere.
To understand the impact of coworking spaces and their effects on high housing prices in India, let’s take a closer look.
How the Coworking spaces Affect the Real Estate Market?
We have to take into consideration the effects on the major stakeholders in the sector when evaluating the advantages of coworking spaces for real estate.
The conventional rental or lease arrangements required landlords to wait a long time for business tenants, during which their commercial facilities would remain vacant and generate no income. There were many causes for these, but the main one was the substantial upfront expenses the tenants had to bear.
Large sums of money were frequently needed for anything from remodelling the area to suit their demands to investing in infrastructure and furniture. The amount of money required to start a business would be significant when you throw in additional expenses like the down payment as well as the fees of lawyers and real estate agents, which few people were likely to dish out unless they had done some comparison shopping and compared prices.
The insecurity of receiving the rent on time each month was another issue with the conventional practice of renting or leasing. The landlords’ ability to collect rent from a single tenant or company would be directly correlated to how well the tenant or company operated its business.
The landlord would have to wait until a similar offer was made if the tenant’s business failed to take off, couldn’t achieve the desired profits, or opted to go elsewhere. Coworking spaces greatly decrease these uncertainties. Since many people utilise these shared offices, including businesses, start-ups, and freelancers, among others, the facility’s success is not reliant on any one of its users.
In addition, businesses or start-ups searching for long-term office space won’t need to organise a significant amount of funds to begin working because these facilities are fully equipped and frequently don’t require a significant down payment. These areas also have the benefit of being easily scalable. A faltering company can downgrade to save money without having to leave the location, whereas a growing company can quickly add additional seats and team members.
Coworking is thus a win-win situation for both landlords with coworking spaces and people/companies looking for adaptable and affordable shared office spaces.
The likelihood of recouping most of their investment is a crucial deciding factor for traditional financial institutions like banks and other lenders, angel investors, and venture capitalists who lend to or invest in coworking spaces.
Single-user or single-purpose factories and offices offer a greater risk because their success is reliant on that of their single user.
So, the investors will have to take over the property and locate another user who would be willing to open a shop there if that user fails or the business is declared bankrupt or insolvent. There may be no way to get the money back that has already been invested during this drawn-out, laborious procedure. But, the situation in a coworking space is different.
Investors or lenders will have a better chance of getting their money back because its success isn’t reliant on a single user. Even if it’s doubtful, a coworking space would be far quicker and simpler to fill by luring additional members than an office building or factory designed to house a single user.
What makes co-working spaces so appealing to Real Estate Agents?
Several real estate professionals initially had a negative attitude regarding coworking spaces because they believed that these plug-and-play offices with a pay-as-you-go subscription model would replace the current commercial market. Nevertheless, as they became more comfortable with the new idea, they saw the benefits of coworking spaces for real estate and how such places provided them with an additional source of income.
Others with long-term goals attempted to establish relationships with renters while some continued to serve as agents, helping start-ups, independent contractors, and businesses find suitable shared office spaces. These agents thought they could capitalise on the opportunity by assisting these members in finding the ideal property once they were prepared to leave the shared office spaces and find their own space.
Indian Real Estate Market has started to recognize the benefits of co-working spaces. It is an emerging industry which has the potential to solve Real estate problems in India. Real Estate Market is ready to adapt to the flexibility and freedom come with a coworking space to take the market ahead.