Coworking Business Opportunities in India: Opening a Coworking Space in Tier 2 Cities
Today coworking spaces is one of the rapidly growing industry. Factors like an increase in a number of startups, changing work culture, technology, minimalism, digital nomadism, and so many other reasons contribute to the rise of coworking spaces. As to the coworking business in India, the country is the third largest startup hub and the second largest freelancer workforce in the world.
According to Knight Frank, India (one of the leading International property consultants), there are close to 200 operators running an estimated 400 shared workplaces across the country today. The number of coworking spaces across the globe has grown by 3,050% (600 centers to 18,900 centers) since 2010.
By 2020 the сoworking spaces in Gurgaon, Noida, etc. are expected to outgrow the traditional office spaces and around 38 million people are expected to work in the coworking spaces worldwide. India as one of the biggest markets of the coworking industry, expects around 13 million people to be using the coworking spaces in the following year or two.
After gathering pace in metropolitan cities, the concept of coworking spaces is gaining momentum in Tier 2 cities. These new-age workplaces are a boon for startup and SMEs.
The concept of coworking spaces has already flourished manifolds in the metros. Soaring real estate costs and space crunch are making it difficult to locate office space. According to NASSCOM, India is expected to see around 11,500 startups in 2020. With the seed money, most startups cannot afford an office space at prime locations. In such scenarios, the Tier 2 cities come into pictures.
Tier 2 cities are evolving with the new age practice. The real estate cost and the infrastructure cost is much less in Tier 2 cities as compared to the metropolitan cities. The availability of land is also relatively high. Hence, the coworking spaces are making life simpler by providing office space at suitable office locations at the cities of entrepreneurs' choice where they can kick-start their companies. Many coworking businesses in India have started investing in the Tier 2 cities.
The concept of coworking business in India has just started in Tier 2 cities, hence there is less competition and the owners can have a first mover and a pricing advantage here. Also, this will reduce talent drain to metros.
The participation of women in the working forces will relatively increase because of coworking spaces in the Tier 2 cities. According to GCUC-Global Coworking Unconference Conference, around 48% of the coworking users are female, which provides additional opportunities to women-focused coworking centers.
Coworking spaces are no longer restricted to startups and freelancers. The subset of people using coworking spaces is getting bigger. Even the tech unicorns are slowly shifting towards the culture of coworking space since it is the future.
The shared office spaces attract individuals looking for:
- a place to work,
- a group collaboration,
- meetings on work trips.
They would rather use their precious time in building up their ideas than getting involved in putting the necessary infrastructure together.
Increasingly established corporates are also looking favorable at coworking spaces to expand their presence in newer territories without committing to having their own fixed office spaces. The like-minded people with a common zeal can network with each other in this environment. There will be a lot of demand for shared spaces in the coming future.
Not to forget the fact that coworking spaces help you to build good business connections especially when you are at the initial phase of business.
- Coworking spaces are great when one is looking for places to escape the isolation of a home office or a coffee shop.
- Coworking spaces are cost-effective. You need not deposit thousands of dollars in a space and feel stuck with them just because you don’t have the luxury to find a better alternative space.
- These shared workspaces offer space types such as hot-desks, private meeting rooms, workstations, cubicles and more. Occupants are majorly freelancers, entrepreneurs, start-ups and small teams who want to take advantage of flexible space.
- Digital nomads are increasing and their usage of coworking spaces and digital nomadism may become the future.
- Shared spaces allow true freedom and mobility. They facilitate innovation by letting different people with unique skills and talents to connect and collaborate. Coworking spaces give you an entrepreneurial spirit to constantly experiment with your ideas.
- Due to the coworking spaces in Tier 2 cities, the local talents will pursue their ideas at their place which also helps the local economy grow. Many brands are shifting and expanding their base to Tier 2 cities. The shared office spaces are expected to grow 3.5 times in the year 2020.
- An easily accessible location is one of the most important prerequisites in starting a workspace.
- Most of the startups are launched by millennials and they want office space which has a nurturing vibe, community events and not just walls, desk and chair.
- The coworking space should be cool, technology embedded, flexible and culturally connected.
- These spaces should be reasonably priced and fully equipped with value-added services.
- A community manager is needed to take care of all the needs/queries of the clients at the spaces.
- High-speed internet connectivity, printers, scanners, kitchen space, café lounge, and vending machines are an absolute necessity.
- Gaming arcades, gym, yoga, and meditation rooms to help you take a break from all the brainstorming are always a good addition.
Tier-2 cities with increasing disposable income and talent pool at a lower cost and plenty of space to expand are rapidly becoming favorable investment destination for corporates.
It is said that only 40% of the coworking spaces are making profits, according to Coworking Resources, around 70 % of the coworking spaces start making profit only after two years of their opening. The new age economy has reduced the need for migrating to major cities for business opportunities which is a good chance for Tier 2 cities. Having seen the co-working concept succeed in larger cities, and the rapid urbanization, investing in coworking spaces in Tier 2 cities is a very good idea. Coworking business in India is a cash flow generating model.
Apart from regular rents, revenue also comes from providing other value-added services. Investors can also enter into revenue sharing models with few bootstrapped startups which can offer a high risk/reward investment.
In a smaller area, word of mouth can do wonders. It’s like getting 5 stars in the review section. Basically, start with a certain group of people who wish to use your office space to carry out their business activities. If they have liked the premises and services you provide, they will surely recommend your hub, and you will have many potential clients requesting to rent out this space.
Google My Business along with other ways of digital promotion is becoming a game-changer for small and local business owners.
While there are so many pros from the owner’s perspective to start their own coworking spaces in India, there are some challenges too. Like any business, there are few downsides in the coworking spaces.
- Beginning with bureaucratic red tape to finding a handyman, there are many challenges in running a coworking space.
- Customer retention is one of the biggest challenges. Around 90% of the startup fail within their first three years. Hence the coworking spaces sometimes suffer and find it difficult to find the alternatives at a shorter time.
- The high cost of insurance and risk covers.
- The biggest threat among the clients using the coworking spaces is hacking. Since they share the common internet connectivity they are prone to hacking and the data leak is also a possible threat. Hence owners must invest in good data security tools and software.
- The money spent on amenities and benefits may also put a financial burden on the operator if the coworking space doesn’t yield profits in the long run. According to Forbes India, we are likely to observe increased consolidation among coworking operators in the near future due to this very reason. It predicted mergers and acquisitions (M&A) will see an uptick with market exits, and the number of coworking spaces may dwindle from its current numbers.
- Another challenge can be to employ and manage the blue collared staff. The shared admin job is also very strenuous as they have to cater to the requirements of all the tenants at your space.
- When the bigger name brands start a location in coworking spaces, people tend to shift to their spaces and hence the growing competition is also one of the challenges in running the coworking space. Not every coworking space can survive it and they may be pushed to rent the places cheaper or to shut down space completely.
Lastly, I would like to quote a famous saying by a very renowned ice hockey player:
“I skate to where the puck is going to be and not where it has been.”
So it’s a great opportunity for the owner to catch the wave in the Tier 2 cities as there is a good scope to charge a premium here owing to less or no competition at all to benchmark the pricing. Coworking spaces are certainly “the office of the future”!
---The article is written by Sandhya, an engineer turned to digital marketer with a passion in blogging and travelling.