Co-Working Spaces: The New Trend in Real Estate

There is a relatively new form of a business model emerging in the real estate space across the world. The model is addressed by several names viz. co-working spaces, on-demand workplaces, shared offices, etc. This workspace model has gained impetus because of spiraling real estate costs. It is also very effective for companies who do not want to tie themselves down with long-term lease obligations and instead have a flexible cost structure. In this article, we will have a closer look at this trend of shared offices.

Common Reasons Companies Opt For Co-Working Spaces

• Cost: This method is particularly useful for startup companies. Most of the startup companies today are in the hi-tech space. This means that they require offices with facilities such as video conferencing, VOIP enabled phones, leased internet lines, etc. However, setting up all these facilities from scratch is a bit expensive for startup companies who are usually strapped for cash. Hence, it is economically as well as operationally feasible to use this plug and pay model for office space. For a startup company, this works out to be more expensive on a per month basis. At the same time, bigger corporations find this model to be cheaper by around 25%

• Infrastructure: Co-working spaces allow the cost of the operation to be reduced without affecting the infrastructure quality. Usually, such shared workspaces have conference rooms and even video conferencing facilities. Companies get readymade infrastructure from day one. They can focus more on the core tasks performed by the company instead of paying attention to administrative tasks which add to the time and cost but do not produce any value for the customer.

• Travel Convenience: Several multinational companies tend to opt for this model in Tier-2 and Tier-3 cities. This is because these companies do not require a full-fledged office in these cities. Instead, they have a team of 10 to 15 personnel. They do not want to compromise on the quality of office space or the facilities that they provide their employees. Also, they want their offices to be centrally located because most of the times these employees work with the sales department and need to travel extensively. It is for this reason that shared working spaces become a viable alternative. The infrastructure is shared with other teams. It is just that these other teams may belong to a different organization altogether.

• Shorter Commute Times: Employees in big cities are tired of spending hours commuting to and from work. Apart from a nine-hour job, many people spend another four hours commuting to and fro. This commute time does not add value and hence should be eliminated. One of the ways of eliminating this is to start using shared workplaces. All workers should not be required to commute to one location for work. Instead, workers should be allowed to log in to the nearest shares workplace center. Time saved commuting results in more productive employees who can work longer hours in tasks that actually add value to the organization.

• Flexibility: Increasing the size of an organization becomes a logistical problem in traditional offices. For instance, a company may want to increase its employee strength by ten employees. However, they cannot rent additional space for only ten more employees. They have to rent an entirely new office unit. Alternatively, they have to cramp up the existing workplace and ensure that they ten new employees fit in the existing office. However, with shared workspaces, this is not the case. Companies can rent exactly as many desks they need and for the exact period of time that they need.

Problems with Shared Workspaces

• Cost Allocation: Allocating costs on a shared workplace can be a very difficult task. In a fully leased office, the company pays all the electricity bills, water bills, property taxes etc. However, in a shared workplace, these costs need to be apportioned. This is where disagreements begin to happen. Some companies believe that headcount in a more appropriate metric to allocate costs. On the other hand, other companies may believe that headcount is more appropriate. Also, since the bill is being shared, companies will not have an incentive to minimize the usage of electricity, water or other such scarce resources. Developers are trying to circumvent this problem by building these costs within the lease prices. However, that ends up causing wastage of resources and even leads to disputes in many cases.

• Privacy: Shared workspaces are cheaper and may have better infrastructure. However, most companies would not be comfortable in locating their critical operations to such facilities. The reason behind this is simple. There is a high chance of data or other intellectual property being stolen. Also, if the strategy of a company is leaked to its competitors, it may lose its competitive edge. The shared workspace model, by definition, cannot overcome this problem.

The future of workspaces is likely to be a fusion of the two models. The regular, mundane work which is not mission-critical may be performed at shared workspaces because of lower costs and other advantages that they offer. However, higher-end tasks which involve sensitive data and strategy information may continue to remain within the realm of leased workspaces.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.