How are co-working spaces WeWork and Awfis recovering from the WFH jolt?

Contrary to the 'Coronial' culture of working from home, co-working space and service providers like WeWork and Awfis, need people to return to offices.

Work from home (WFH) is unarguably the biggest COVID era shift in the way people work. While it is, in a way, a necessity for companies to operate both seamlessly and sustainably, it is detrimental to the interests of the co-working industry, which needs people to work in/from their offices.

Co-working startups, like WeWork, Awfis, etc., offer flexible office spaces and amenities to companies and individuals. The flexibility is in terms of duration, locations, payments, other than space and amenities required.

The target audience ranges from large enterprises to individual freelancers. The fear of the Coronavirus and then the subsequent lockdown strained cash flows of companies, forcing them to re-look their capital and operational expenditures. This, in turn, affected the occupancy in offices.

Sumit Lakhani, CMO of Delhi-based co-working startup Awfis, says that (physical) occupancy in offices started declining weeks prior to the lockdown, as employers started adding flexibility to work. Lakhani was VP, Investment Banking at Yes bank prior to joining Awfis in June 2015.

“There was a major impact once the lockdown was implemented (on March 25). This was followed by knee-jerk reactions from a lot of companies. We started seeing requests for termination from smaller cohorts, requests for concessions, etc. No one thought that it could stretch over multiple months.”

Awfis currently has 35,000 seats across 67 centres in 10 cities (including Mumbai, Delhi-NCR, Bengaluru, Hyderabad, Kolkata, Chennai, Pune and Chandigarh). It has a member base of 28,000+ professionals and 1500+ companies. The company plans to enter tier-II cities, like Ahmedabad, Kochi and Indore.

US-based WeWork offers 60,000 seats and has 40,000 members across 34 locations (including Bengaluru, Mumbai, Gurugram, Noida, Pune and Hyderabad). The startup had a profitable Q1, with an uptake in enterprise clients and demand.

“Like in any crisis, there may have been people who have decided to leave us because of financial constraints. But there are many more who are talking to us about collaboration, and what we can do to take it forward. The conversation is more about keeping our spaces safer and hygienic,” says Vineet Singh, head of brand and marketing, WeWork India.

Prior to his stint at WeWork, Singh was executive vice president and head of CRM, India at Digitas India.

Today, 60 per cent of WeWork’s 40,000 members are large enterprises, while startups/freelancers/SMEs make up for the remaining 40 per cent. The ratio was 50:50 in the pre-COVID era. “Large enterprises were pushing for flexible office spaces, which was not just the flexibility in designing the space but also the multiple timings that they would like to adopt to,” Singh says.

At both WeWork and Awfis, a significant share of the conversation with clients is around hygiene and safety measures; and how they would like to see their COVID era offices. This was followed by implementing social distancing SOPs, frequent cleaning of high touch points, frequent fumigations, etc. WeWork India even received a ‘COVID-ready’ certification from British Safety Council, the global health and safety organisation.

To keep the conversation going, WeWork launched ‘WeWork on a Journey’, its own podcast series, in association with Spotify. It focuses on success stories of Indian brands, such as Chai Point, Greater Than Gin, Pernia Qureshi’s Pop-Up Show, Impresario, Bombay Hemp Company (BOHECO), Leap.Club and Nappa Dori.

The pandemic started in China and WeWork, with its global presence, had access to on-ground experience before the crisis hit India. “We spoke in detail with our Chinese/US/European counterparts, and were already aligned before the lockdown happened. Social distancing and screening had already started. They are taking our learnings as well,” Singh says.

Both the companies also initiated daily and national passes, i.e., users book a desk for a single day, while also being able access a desk at any of the brands’ locations.

Lakhani says that during April and May, Awfis focused entirely on addressing requests for termination/concessions. “We got into discussions with our landlords and requested concessions. The operating costs went down. We went ahead and assured transparency in transferring these benefits to our clients.”

Almost 65 per cent of Awfis’ business comes from medium to long-term contracts, with only 10-15 per cent coming from short-term contracts (six months). The problems were with very short-term contracts (less than six months).

“We faced non-renewals with this cohort (short-term). Seventy per cent of our customer base has teams of 50-plus members and they are more stable. It is not feasible to pull out 50-200 employees overnight. There were very genuine cases of serious financial difficulties and we came up with multiple payment structures for them. Around 10-15 per cent of the occupancy was deeply impacted by the situation,” Lakhani reveals.

A major extension in Awfis’ business was to introduce Awfis@Home, its brand of WFH necessities. The brand launched a line of WFH furniture, alongside bundled services like high-speed Internet and IT troubleshooting. While it was aimed at companies looking for ‘at-home’ services for employees working from home, it went B2C following demand from individuals. There is both a subscription model and a one-time purchase. Apart from a D2C website, the brand has also been listed on leading e-commerce platforms, like Flipkart and Amazon.

“We realised that people do not have necessary infrastructure to work from homes and created a subscription model. At Rs 2,000 per month, one could get access to a smart desk, a smart chair, high-speed Internet, IT troubleshooting and visit our nearest office centre for meetings, etc. Unlike commercial office desks, our WFH furniture is designed to go well with home decor. These were delivered to a customer’s house.”

Lakhani expects the new brand to outlive the COVID scenario, as consumers will continue to require home office products. “We saw a huge demand for these June onwards. Our own physical centres can become Awfis outlets for Home Awfis brands. Apart from the business, it brings along a lot of reach for our brand, especially inside homes.”

Apart from the shifts in work behaviour, COVID has also ravaged the real estate sector, bringing new construction to a halt. A recent report by Savills India (real estate consultancy) suggests that the impact of the pandemic on the office market in major Indian cities in the next 12-14 months could be moderate to severe, depending on the duration of the pandemic.

As per the report, leasing volumes would be significantly lower, as compared to 2019. Sales were down by 30 per cent in the first three months of the year (2020), as compared to 2019. With construction coming to a grinding halt, a fresh supply of office space would be considerably delayed.

“Our partners, landlords, members, vendors have all been in favour of a seamless and sustainable growth. There has not been any negative conversation. The growth plan is in terms of utilising the existing spaces, rather than expansion. We are not looking at new cities at the moment,” says WeWork’s Singh.

On the contrary, Awfis’ supply teams have been on the lookout for opportunities in the real estate market, June onward. “Because of a lot of vacancies, it is a good time to expand in commercial real estate. The deal structures that we will get will be good. Once the pandemic ends, things will be back to normal, and it is important to capture supply. The expansion is on track, but it’s a cautious optimistic approach.”

Apart from approaching landlords with fully fitted vacant properties, Awfis has also been approaching other co-working players as an operator for them. The company plans to reach 2,00,000 seats in 15 cities in the next 36 months. “Flexible workspaces are at around 2.5-3 per cent of the overall commercial real estate market in India. It can become almost 10 per cent in the next 24 months. The industry and demand will move towards larger organised co-working players,” Lakhani says.

A major trend is about larger companies looking for flexible and managed workspace. This is driven by the need for offices near the homes of employees. “Business leaders have speculated that permanent virtual work could lead to decline in innovation and creativity. They want more safe and flexible options in the post-COVID world – decentralised HO with offices in different locations. Also, they want to give the same kind of experience to all employees,” Singh says.

Lakhani mentions that there are two key things that will impact co-working. First, it will lead to a lot of distributed workspace requirement. Companies that used to have very large HOs will prefer smaller offices and multiple satellite offices. A company cannot manage so many offices and will bring in demand for co-working services.

“We have always focused on having a large network of smaller centres, instead of having very large centres in a single location. Large corporates are looking at converting capital expenditure to operating expenditure. They are also looking for managed offices.”

After the initial dip in occupancy at WeWork, employees are gradually walking back into offices. “We see the numbers increasing on a daily basis. We haven’t seen a massive change in the collaboration culture at WeWork,” says Singh.

New sales at Awfis have also started picking up. “While we would sell 1,700-1,800 seats per month nationally, we are at 1,200-1,300 seats at the moment,” Lakhani signs off.