Dec 09, 2020

Coworking is the Fastest Growing Segment in Commercial Real Estate

Office SpacesPeople and EngagementCommercial Real Estate

Smartworks, which added half a million sq. ft through its key markets in Mumbai and Bengaluru this year, plans to add another million sq. ft in the next six months, says founder Neetish Sarda.

With demand for coworking space growing rapidly across India, Gurugram-based Smartworks is targeting 10 million sq. ft. of managed office space over the next three to five years, with a major focus on the west and south regions. In an interview with Fortune India, Neetish Sarda, founder, Smartworks, talks about the company’s enterprise-focused model in a highly competitive and crowded co-working office market and its expansion plans. Edited excerpts:

Over the last two years, Smartworks has built a network of about 15 shared-work spaces across nine cities in India. How has been the journey so far and how are you differentiating from other players in the business?

In a short span of two years, we have scaled up to cover over 1.2 million sq ft across nine cities. Our overall revenue increased five times in the last year. While it has been rewarding to grow so rapidly, we are conscious of our bottom line. Our business model is already profitable. We [promoters] have put in $20 million so far in the business to kick start. We have had a fair share of investor interest, and will work to find the right pedigree of investors for growth financing and scale.

Smartworks has focused on the managed office space for enterprises since inception. The differentiation hinges on enterprise client mix and providing a national footprint. Our research and development (R&D) efforts have added great value across each stage of our customer’s search: identifying a prime location, designing, building and maintaining a tailor-made office space.

You have spoken about dedicated coworking spaces for certain professions such as accountants and lawyers. How are you planning that? Our core model is based on leveraging our strong R&D efforts to design a personalised experience best suited to our member’s needs, creating tailor-made office spaces in line with their ethos and brands. We cater to an array of clients, which is not restricted to only accountants or lawyers, but techies, HR etc. The set-up for a techie might be very different from that for a lawyer, therefore, we offer bespoke solutions for each vertical. For example, we have used the biophilic design which not only allows for more light in the centre, but also offers bamboo trees, artificial grass floors, in addition to breakout and gaming zones. For legal, we have value-add partnerships ranging from legal, taxation to ensure companies get additional discounts and value for money.

Enterprise is almost 75% of your client base. Have large companies been the focus from the beginning?

Enterprise DNA requires a different mindset. Their requirements are more oriented towards employees. One of the key questions is how to increase productivity at the workplace. We have several employee engagement programmes that not only boost employee motivation but also increase productivity. Early learnings on the right client mix with longer tenures and stable cash flow led us to focus on enterprises. For enterprises, the approach to shared workspaces is a blend of convenience, business and employee engagement/productivity. From a business model, it lends more stability in cash flow and better unit economics. The market for enterprises in India is much bigger than startups and freelancers. Conventional office spaces, which typically have enterprise occupants, will continue seeing disruption from players like us.

Do you foresee any change in the client mix?

We will continue to be very enterprise-focused; however increasingly we are seeing a trend of longer tenures. Enterprises have higher costs of switching their office locations and they prefer sticking to the same office. Having said that, we continue to have a strong client base catering to small and medium-sized enterprises (SMEs) and freelancers. In the last year itself, a quarter of our revenue came from some of our existing clients who have taken space from us and expanded to our other centres. Besides, some of the fast-growing startups on board are Swiggy, OLX, 91mobiles, Toppr and Rivigo.

Most of the coworking companies are ramping up their presence in metros. Are you planning to do the same? How’s the market in the tier II and III cities?

Yes, we have a strong foothold in tier I markets such as Delhi-NCR (National Capital Region), Mumbai, Bengaluru as the coworking industry is bullish in these cities. Last year, we had 90% occupancy across a majority of mature centres and five times expansion in our footprint. Our focus will continue to be in under-served tier I markets such as Chennai, Kolkata, Pune, where there is immense demand for high quality co-shared spaces. Given most of our existing members have plans to expand to tier II and III cities, we are definitely looking to make inroads into these markets over the next year. With demand for workspaces growing rapidly across India, Smartworks is targeting 10 million sq ft. of managed office space over the next three to five years, with a focus on west and south regions.

Coworking space may have its own demand, but commercial real estate leasing market in India has also been on an upswing. Do you see this impacting your enterprise client base?

Coworking is the fastest growing segment in commercial real estate in India. A steady and consistent growth in real estate markets will automatically complement the rise of coworking spaces as well. However, the increasing demand for coworking spaces, not only from start-ups but also from large corporates will add to growth in existing commercial leasing. Coworking spaces have become the preferred choice for many enterprises as they are more convenient and cost effective. Our members include 75% enterprise clients like Tata Communications, Microsoft, ArcelorMittal, Amazon, Carrier, Otis, Daikin, Lenovo, Bacardi, and OLX among others. We are extremely bullish and this year itself we have added half a million sq. ft through our key markets in Mumbai and Bengaluru. We plan to add another million sq. ft in the next six months, with a focus on south and west.

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