In 2015, when Chinese manufacturer Huawei moved out from their office set-up located at Bengaluru’s five-star hotel The Leela Palace, the hotel management was dabbling with plans of setting up service residences or apartments. But, the mathematics didn’t work out for the hospitality chain. The property was in the market for sometime.
The hotel management was looking for an arrangement that could utilise the entire space. It was about 1.15 lakh sq. ft. area spread over four floors, with each floor occupying about 28,000 sq. ft.
Last year around October, Bengaluru-based shared office space provider IndiQube decided to take a chance. “The hotel management was looking for someone who could take up the entire space. Initially we took two floors, but now have taken over all four floors,” says Rishi Das, co-founder and chairman, IndiQube. In 2015, Das co-founded the startup along with his wife Meghna Agarwal.
IndiQube’s co-working space at Leela now has 2000 seats, housing a mix of startups (about 30%), off-shore development centres, family offices of high net worth individuals (HNIs) and venture capital firms. Some of its large occupiers include online bus ticketing platform Redbus (350 seats), fin-tech startup Scripbox (175), Enphase (200), a technology firm in the energy space and software company Cleo (75). The startup boasts of a full-occupancy rate at the Leela property.
Besides Leela, IndiQube has a 500-seater co-working space spread across three floors in Courtyard by Marriott in Hebbal, Bengaluru. IndiQube moved to the property in May this year and now has an occupancy of about 300 seats. Some of its key clients at the property are X-Rite, a colour measurement and management products maker, and manufacturing company HNI Autotech, among others.
“Hotels are a good fit for our model. We are now exploring hotel properties in Chennai and Pune as well. We are seeing that there are older hotels, which are in the market. There are also hotels, which are not doing good business and the land owners are looking for a steady and regular flow of income by renting out few floors to players like us,” says Das.
IndiQube has also signed a deal with a hotel property on Bengaluru’s outer ring road, which houses many of the city’s large IT parks. It is a 120-room business hotel, which will provide 50,000 sq. ft. of shared-office space, with about 1000 seats.
Taposh Chakraborty, principal at Boutique Hospitality Consultants in Bengaluru, explains why hotels see an opportunity in this model: to optimise the long term usage of hotels’ large overbuilt or idle capacity which not only bears high development costs but also compels incurring high maintenance charges, for commercial purposes, and to release some perennial high pressure on their bottom line.
“The hotel occupancy fluctuates between 40-100% on weekdays, weekends and holidays. An average 35% unsold rooms (assuming 65% occupancy), coupled with not fully commercially used large public areas can be estimated at 20-30% of the total built up space in a hotel. If that goes unmonetised, it is termed as fixed loss, though notional, as hotels incorporate this factor in its financial goal,” says Chakraborty, adding that “Arresting this loss without compromising with the image of the hotel, means directly adding to the bottom line, given the fact that stabilised hotels are facing flattish or insignificant growth in its top line.”
In terms of the business model, there is a huge synergy between hotels and co-working space providers. Hotel environment offers facilities with back-end support that fits well with the co-working model without much investment and structural changes. Hotels also bring value in terms of location, address, ready space, manpower and service standards. Experts say other than large tech parks, good quality commercial real estate in India is difficult to access.
“There is a lot of sharing of resources in a hotel property. In hotels parking needs are mostly in the weekends and in the evening peak hours. During the day time the parking lot is mostly vacant which we can utilise. Hotels also provide an easy access to the food and beverage services at any point of time. It is more like an integrated product,” says Das.
The concept is not new, and is similar to other co-working players who have set up shared-work spaces in hotels such as New Delhi-based Afwis, which has over a 200-seat, shared-office facility spread across 15,000 sq. ft. in Hyderabad’s Taj Deccan. “We are actively exploring more such partnerships with leading hotel brands for setting up more coworking centres,” says Amit Ramani, CEO and founder, Awfis, which currently has a network of over 25,000 seats across 55 centres in nine cities and 45 micro markets. Besides hotels, Awfis has partnerships with mall owners for setting up its co-working centres including Nucleus mall in Pune, Raghuleela mall in Vashi, Heera Panna mall in Powai.
Globally as well there are many hotels that offer co-working spaces such as Nest located in Dubai’s Tryp hotel (part of hospitality major Wyndham Hotels and Resorts). It claims to be one of the world’s first integrated co-working spaces within a leading global hotel brand. According to the Tryp website, members of Nest get flexible access to the co-working space as per their own convenience. Members also get benefits such as dining discounts, gym and pool access, free valet parking, preferred room rates and others from the hotel. Among other hotels with co-working spaces are Hobo hotel in Stockholm and Hotel Schani Wien in Vienna.
“Globally coworking in hotels is becoming increasingly popular because it is bringing the hotels additional revenue as well as reviving the spaces by adding buzz, a sense of community and a diverse set of clients: freelancers, entrepreneurs, professionals. Amenities such as business centres, cafes, gyms, restaurants provide appealing add-ons. Hence it will not be much of a surprise if a similar trend gathers pace in India, too,” says Ramani.
Ram Chandnani, managing director, advisory and transaction services, CBRE in India, points out that in the overall office-space market in the country, co-working spaces have seen a rise in demand. “The total share of the co-working space has almost doubled to about 10% in the first half of 2018 from 5% during the same period last year. As per a CBRE report, almost 350 co-working space operators are present in India, with majority of the players offering co-working and business centre spaces spread over 800 locations.”
According to Chandnani, co-working spaces facilitate a cost saving of 10-25% when compared to conventional leasing especially in larger cities like Delhi, Gurugram, Bengaluru, Mumbai and Pune.
Interestingly, experts points out that, lately, of the over 40 million sq. ft. of India’s annual office-space absorption, Bengaluru alone absorbed about 15 million sq. ft., which is almost 40% of the country’s total demand in the office space. Real estate demand from Bengaluru in office space has been consistent in the last four years.
Business is clearly booming in the co-working space. However, at the heart of all this is the tenant. Much like in traditional office space rentals, the mathematics of co-working spaces needs to work well for the tenant.
According to co-working space providers, the hotel space is typically taken on a pre-committed rental. “The rent increases every three years. However, leases are typically for 20 years. We give the landlord a lock-in period commitment of five years. There is no revenue sharing,” says Das. While Awfis works on a low-risk and asset-light partnership with space owners where landlords make the investment on fit-out infrastructure and building a centre. “The profits from the centre are shared with higher percentage going to space owner who ends up not only getting occupancy for asset but also 20-50% higher returns than market rentals,” says Ramani.
It is still, however, a nascent business. And for people like Das and Ramani, there’s still a lot to do.