2019 Records Highest Volume Of Private Equity Coming To Co-working Operators

New Delhi: Co-working spaces emerged as one of the shining stars as a real estate industry segment in 2019 and the year saw the largest volume of private equity (PE) funding flowing to the flexible office providers ever.

The total volume of PE funding in the co-working segment in 2019 stood at around USD 97 million, far higher than any of the previous years. For example, it was just USD 49 million in 2016. 

There were some notable deals in the industry segment, while some companies joined the co-working bandwagon through acquisition route in 2019. 

The largest and most notable deal of 2019 in the co-working arena was that of BlackRock investing USD 53 million in GoWork. CLSA Capital Partner also participated in the investment. The deal marked the first onshore private investment transaction in the country by global investment management player BlackRock.

Another deal in the year that grabbed everyone’s attention was that of ChrysCap investing USD 30 million in New Delhi-based Awfis. Sequoia Capital India and The Three Sisters Institutional Office too participated in this investment round. Thus, Awfis has so far raised USD 81 million. 

Some of the companies joined the party by acquiring existing co-working players. For example, OYO Hotels and Homes bought out co-working firm Innov8. The deal was pegged at Rs 220 crore in an all-cash deal. OYO had planned to expand Innov8 operations by setting up 35 new centres across many cities in the country.

The PE deal were not limited to just co-working pure-play in 2019 but also spanned to technology-enabled co-working platforms. Qdesk, a flex-space technology platform, got PE funding from JLL Spark, the Silicon Valley-based VC division of the real estate consulting company JLL.

The PE funding received by co-working firms have enabled them to expand their reach and scope. The year 2019 also saw co-working players also include in their client list some of the large enterprises. Some of the big companies realized the cost advantage that these co-working offices have to offer as compared to running their own offices. It also dawned upon them that they need to be closer to their customers and serve them locally and they need to position some of their employees close to their customers and what better option that co-working offices since the capital cost of setting up their own offices would be far more tedious  and expensive. Today, some of the largest companies have part of their business running from co-working spaces like Awfis has Vodafone, Hitachi and reliance as some of its clients. Similarly, Innov8, which has now been taken over by Oyo, has Pepsi and Sun Life as some of its clients.

In 2019, the co-working players penetrated tier II towns far deeper than earlier and are now present in Indore, Lucknow, Ahmedabad, Jaipur, Coimbatore, Madurai, Chandigarh, Vishakhapatnam, Mangalore and many others. The co-working players are experiencing occupancy rates of about 90-95 percent in these smaller places also.

The co-working spaces segment is expected to gain more significance in the coming years. In 2019 itself, there has been about 45 percent growth in the net absorption of commercial space by co-working firms over 2018. 

The share of flexible offices leasing in overall leasing activity of commercial real estate has gone up to 13-14 percent in 2019 as compared to just 5 percent in 2017 and around 8 percent in 2018. In 2019, the number of co-working seats in the country went up to around 16-18 million with the number of operators touching around 330 and the number of shared workspaces going up to 400.