Advantages of Co-working Spaces for Enterprise Occupiers: A Paradox?

Traditional office spaces are a thing of the past now. Not just the entrepreneurs and startups, even larger corporations are moving in to new age co-working spaces. In fact, most of the co-working operators say that a majority of their seats/space is taken up by “Enterprise Clients”. Years ago, your office had collaboration lounges, foosball tables, gym, free snacks and beverages, etc, only if you were working for one of the tech giants. The others did not have the financial muscle to provide these frills to their employees. Later when the startup culture was booming and most of these startups wanted to woo the best talent from these tech giants, they had to ensure that their work environment is as good as that of those tech giants. This is a problem that the co-working operators solved initially. Their vibrant workspaces appealed to the free-spirited generation of entrepreneurs and startups. Soon, the larger organisations wanted to join the bandwagon – not just to provide a ‘cool’ workspace to their millennial talent, but for a plethora of other reasons.

It is therefore important for us to understand those reasons – the changing occupier requirement! What are these tenants looking for and why are they looking for those? While the actual case-specific reason(s) may vary, let us try to summarize the key aspects;

·     A great, vibrant workspace experience: 

People are looking for workspaces that are social, collaborative, open, one that improves productivity, etc. Workplace experience is key. Social and networking events, a community atmosphere, bundled-in common amenities, etc are increasingly becoming part of the basic expectations from a workplace. While the smaller organisations would not want to commit financial and manpower resources for making, maintaining and managing these facilities and activities, the larger organizations are looking to save on the space, time, money, effort and manpower required to provide for these. Sharing these spaces also brings in the much need collaborative and coolness element into the workspace. And this may explain why an overwhelmingly large percentage of the co-working space occupants are “enterprise clients”.  

·     Cost effectiveness:

Coworking spaces provide a plethora of shared areas and services. Such centralization by the operator enables the occupier to cut down on the actual space required by them and the costs pertaining to maintaining and managing such areas. While it is great to have a swanky reception, a large board room, a few meeting rooms, a nice cafeteria, collaboration zones and other amenities, these areas are not always used effectively. Coworking spaces provides occupiers the ability to lease only as many seats and/or rooms as they require, and the rest of the seats, rooms and other services can be used on a la carte basis. It provides the luxury of a large and plush office space, without actually having to invest in it.

·     Flexibility & Convenience of operations:

Reducing the time taken to start-off, upsize or downsize, relocate, etc is touted as a major advantage of co-working space solutions. Given the dynamic business environment, flexibility in this regard is a key factor for every organization. Tenants are not comfortable with longer lock-in periods, and the co-working operator is happy to help them upsize, downsize or even relocate to another center or geography, without holding the tenant on for longer lock-in periods. The operator also manages the facility including housekeeping and other services inside the office space, provides for the common collaborative zones, organizes employee engagement activities, etc thereby taking a lot of burden off the occupier in their pursuit of employee happYness.

·     Avoid Capex investment:

Coworking operators invest in building out the office space to a plug-and-play condition, and they also maintain and manage the premises and its day to day operations. The occupier does not have to lock funds that they otherwise can put to better use in its core business and people. This allows the occupier to scale up or down and/or relocate without having to worry about asset depreciation or sunk costs. 

·     Professionally managed office:

Let the workplace professionals do their job, while I concentrate on mine. The operator being in the business of providing workspaces complete with the entire experience around it, is in a much better position to design and create a better space, keep track of the trends and changing requirements of the users, etc. And while doing all these, they can bring in economies of scale.  

But some things don’t add up. Do these touted advantages hold truly good for the enterprise clients? – who by the way occupies majority of the seats/space at most co-working centers.

While cost effectiveness and state of the art workplace experience are the most talked about selling points of coworking space solutions, the enterprise occupiers in most cases would have the financial muscle to provide for the frills on their own. However, the occupier can save on the space, time, money, effort and manpower required to provide for these, and bring in the much need collaborative and coolness element into their workspaces. Enterprise clients may also end up occupying the entire floor or in some cases multiple floors in a building. In such cases, while the savings on time, effort and manpower required to manage the workspace is direct, the savings on space and money is notional because the co-working operators would have factored those (actual cost plus their profits) in to the per seat cost.

Another talked about USP of coworking spaces is agility and flexibility. But how agile or flexible are the co-working space solutions in reality? The operators will aim to minimize their vacancy rates and therefore the space take-up is always subject to availability. This also means that availability of contiguous space/seats for the occupiers’ immediate and/or additional requirement is not a certainty. The possibility of a phased upscaling is also subject to seat/space availability at that given point of time. The interior layout of the coworking spaces are designed and built to make the best possible use of the available space – hence offering limited customization options to the occupier. However, when an occupier takes up a large number of seats, they would expect certain customizations to be made to suit their corporate identity and other business requirements. And in such cases the operator generally asks the occupier to commit to a lock-in period. Therefore, while the convenience of not having to manage the day to day operations of the facility and curate socio cognitive activities to provide a great workplace experience is definitely an advantage, we may not be able to say the same about the agility and flexibility aspects.

Further, while coworking spaces frees the occupier of capex spends, the trade off comes in the form of having to choose from a limited set of templated office rooms, and also the fact that the cost of funds would have been factored into the per seat cost charged by the coworking operator. Also, while these operators are able to drive significant cost savings through scale, do they pass on the benefit of these savings to the occupier?

So, does it make sense for an enterprise occupier to go into a coworking space, or does it make more sense for them to have a managed office space with an identity of their own, within a larger ecosystem? Does it make sense for the developers to plan for and incorporate shareable rooms and other spaces for socio cognitive activities as part of the common areas of the project, and provide a curated managed office solution to the occupier? While the elements of collaboration, community culture, vibrant and productive workspace experience, etc are important, it should not be at the cost of compromising the brand identity of the occupier - something that they have worked hard for and something that sets them apart!