How Coworking companies can reduce their costs and gain competitive edge.

This article explores the dynamic co-working landscape in India, focusing on cost optimisation strategies that can provide co-work operators a competitive advantage. It delves into the industry’s growth trajectory, prevalent offerings, and the emergence of innovative models & opportunities. With a deep dive into cost operations, it examines lease arrangements, fit-out endeavours, and the complexities of maintaining & managing co-work spaces. Through a customer case study, the challenges faced are highlighted, leading to the introduction of solutions that streamline processes, enhance collaboration, and significantly reduce overall project expenditure.

Emerging Coworking space landscape in India

2019 was a landmark year when co-work spaces leased over 10 mn sqft across the top seven cities in India with bengaluru leading the way.

During the two successive waves of covid, the sector remained resilient and thereafter has come out as a resurgent industry growing with innovative offerings catering to the new emerging needs of workplace strategy of disrupting and disrupted businesses, most notably of those involved in IT/ITES.

Current Co-work office stock in India stands at 40mn sqft run by 300 small and big cowork operators. While top seven cities – Bengaluru, NCR, Mumbai, Chennai, Kolkata, Pune, Hyderabad account for 90% of this stock, tier 2 cities are showing signs of being next zones of growth.

Popular offerings of Coworking Operators : Managed Workspace, Hybrid Workspace, Flexi desks and shared spaces.

Even Owners-Landlords and real estate management companies are looking at increasing the share of coworking spaces in their portfolio. This has lead to Emergence of PropCo-OpCo models with master lease agreements to move towards revenue sharing arrangements allowing co-work operators to expand with an asset light model without much capex and risk. This also opens an opportunity for owners to enter the coworking space segment themselves through strategic investments and tie-ups.

Understanding Cost Operations of Cowork spaces

A Co-work operator’s business operations can be seen as composite of two : its revenue side and cost side. lets rather call them Cost operations & Revenue operations and find finer opportunities of optimisation across their operations.

Revenue operations of a co-work can be divided into its Sales & marketing activites through various channels. Key marketing channels for coworking spaces would be Property Consultants / Brokerage Firms, Digital Marketing (SEM, SEO, Google Adwords), Social Media Marketing (FB, Instagram, Linkedin), Events (Coworking spaces often offer free events area for networking events, skill development workshops, open mics, etc which increases the footfall & visibility of the space), Referrals, Content Marketing & PR (Blogs, articles, interviews, media coverage).

On the other hand, Cost Operations of a Co-work company can be broadly divided into 3 major activities-

1. Leasing–Renting from the Owner :

The rental rates for commercial spaces in any Grade A buildings in Mumbai (Andheri, Kalina, BKC, Lower Parel, Worli, Thane, Vashi) can vary anywhere from Rs. 150- Rs. 300 per sq feet. Commercial spaces likely follow a pattern of occupancy followed by a vacancy period, which averages out the rentals for owner to a lower rental rate. Since Coworking is a long-term business with high investments in furnishings, setup & marketing, and thus, longer gestation periods, it makes sense for a co-working company to engage with a space owner with a minimum of 7-10+ years commitment, and get much better rates, on an average 20-30% lower than that for a regular office seeker with a lower appetite for commitment period.

2. Fit-outs & Furnishing :

What truly makes Co-work spaces attractive for seekers is the modernity, quirkiness and warmth that the architecture of these spaces offer with a good mix of work areas and recharge zones. However, All this comes at a cost and one of the main job of the architects and projects head at these companies is continuous value engineering of interior design and material specifications so as to arrive at functional, aesthetically pleasing and agile set of fit-out items.

Whether rolling out its own property or designing for client’s custom managed space requirements, a typical Fit-out & Furnishing project involves mainly these activities : Demolition, Civil and dry masonry works, Tiling and flooring, Electrical, HVAC, plumbing, Furniture & carpentry, Painting & wallpapers, Landscaping and planters.

These project activities need skilled leadership in projects, on ground project managers, reliable contractors and coordination between designers, site engineers and speciality trade contractors( electrical, HVAC) to actually deliver the furnished space on time, within budget and of desired quality.

3. Managing or Running the space

Once the property is ready and office space occupiers have come around, the co-work operator needs to service their customers with best and uninterrupted services. These Cost activities can be summarised into :

• Utilities like Electricity, Maintenance & Repairs, Leased Internet lines, Housekeeping & Pantry Consumables, Basic Stationery, etc
• Salaries of Office Assistants, Housekeeping & Security Staff, Community Managers, Sales Managers, Accounts team etc.
• Other Costs like Compliance, Insurance & Accounting costs which would be minor overhead for a large space.

Diving into our Customer’s Problem

Lets get into a case of one of our customer, a leading Co-work operator in the country, which faced problems in its cost operations : specifically in Fitouts-furnishing & Managing the space

The Co-work operator has 35 properties across 14 cities with 2 Mn+ SQFT rolling stock. It offers Managed office service as well as Hybrid co-work spaces to its clients.

While Its business pipeline & projection has picked up after second wave of covid due to rising demand and strong marketing and business initiatives, there are a lot of challenges that the company faced in rolling out new properties and on demand managed offices designed for its clients. Listing those problems out as discovered by our customer success team during initial phase of problem understanding:

• Modification Difficulty : Struggling to execute modification projects on site due to improper mapping of assets with individual projects : what to keep, what to shift and what to discard.
• Multiple site-surveys related delays : Pre-construction site survey used to be carried out in absence of standard guidelines which made it difficult to capture all necessary details in a single recce, leading to multiple visits and inefficiencies.
• Lack of Project Progress Visibility : There was no clear visibility of project progress on site, leading to difficulties for customer facing team to convey status to client and prepare for their onboarding.
• Collaboration issues and Miscommunication : Multiple delays were experienced due to challenges in collaboration between designer-project manager-contractor.
• Delayed Financial Closure : Waiting for documentation like materials purchase orders, receiving notes, vendor invoices, Overhead proofs etc extended the financial closure process to 7-10 days.
• Budget overshoot by end of project : In absence of a track on installed budget, budget used to overshoot, invariably everytime.
• Scattered Data : Data was dispersed across various platforms such as WhatsApp, Excel, and emails, making it impossible to gain valuable insights for improvement for projects leadership around where to value engineer.
• Maintenance Tracking : Issues like plumbing leakages, furniture damages, AC faults, paint scratches etc are very common. Lack of tracking system for this was leading to maintenance team operating in dark.

Solving the Problem

Keeping the co-work operators problems in mind, the customer success team of RDash implemented a set of solutions for the Co-work company and trained the team on those key features.

• Digitisation of BOQ and standard Inventory: Each BOQ item got digitised and was assigned a digital reference number, which helped client in simplifying asset management and facilitating easy modifications in the future with precise element-level data being mapped with individual projects.
• Value Engineering : Digitised BOQ helped the project team in deep element-level analytics and cost optimisation through value engineering, ensuring efficient budget management.
• Enhanced Project Visibility : The Platform provided complete visibility of each project’s stage, along with associated deadlines, giving the leadership team control of their sites right from their office.
• Effective Collaboration : The platform facilitated effective collaboration among team members through Contextual discussion on design changes, purchase orders, runtime issues.
• Delay Tracker and Notifications : Along with real time site progress reports, the platform enabled Delay Trackers and alerts for all activities , helping relevant stakeholders for timely intervention and preventing major deviations in timelines and budgets.
• Vendor Management : All vendors were digitally onboarded along with their digital rate contracts. Vendors received all work through platform.
• Financial Accounting under cost heads : The platform eliminated episodes of overspend and malpractices by mapping all project overheads to the appropriate cost centres such as Material cost, Contractors bills, Travel, imprests, onsite purchases etc.
• Data Management: Training company’s projects and finance team on the user-friendly platform enabled all relevant stakeholders to log-in and manage the shared information repository covering every aspect of the projects including Site Survey reports, Design Files, approved BOQs, Purchase Orders, Progress Updates, Goods receiving notes, Vendor bills and indirect expense proofs.
• Smooth Financial Closure : With proper approvals & documentation automated at each project stage already, reconciliation & financial closures became easy allowed transparency for future reference.
• The starting point of reducing cost is to recognise contributing costs under various cost heads for all projects, however small the cost head might seem. Then, deploy an engine that alerts on these cost heads for each project level as well as company level.

After Implementing the above solutions, The customer experienced following results in Project costs and performance:

• 9% Reduction in overall Project Expenditure : 3.5% – By means of improved Rate Contracts, 3% due to unnecessary manpower & Travel cost, 2.5 % Due to avoiding rework.
• 3.5% Additional Save which earlier went in dead rentals.
• 20% faster execution : Average delay due to unplanned site issues reduced to 1.5 days, Drastic cut-down in Pre-construction & planning time, 60% of delay alerts attended by management and action taken.

The starting point of reducing cost is to recognise contributing costs under various cost heads for all projects, however small the cost head might seem. Then, deploy an engine that alerts on these cost heads for each project level as well as company level.

Unlike traditional project management ERPs, RDash made sure that as a project progressed, the costs got allocated under right heads. Whenever the cost head’s limit reaches, the system raises alerts and every penny gets accounted for. Moreover, with alerts on delays of milestones, the management could take timely action and bring the project activities back on track. This meant a real time projects control tower in the hands of management through which they can fastrack projects and keep a check on cost, at the same time.

Summarizing

To gain competitive edge, Co-work Operators must divide their strategic operations into two – the legs (Cost Operations) and the wings (Revenue Operations). Strong leadership in sales and innovative marketing practices signify how to keep growing and spreading your wings. The legs represent operations intensive activities such as leasing operations, expertise in Fit-out projects and running the space like a clockwork. In cultivating a long term strategy, these enterprises must continuously strive to build its leg strength or fortify their foundational strength to ensure preparedness for the market opportunities that lie ahead.