Co-working and commercial managed office spaces will have to go through a major overhaul in terms of lease structures, office space design and daily operations in the post COVID-19 era. Square Yards had a conversation with Puneet Chandra, Co-founder and Director, Skootr, one of the largest players in the managed office segment, about the future of the industry and how they are preparing for the same. Read on:
How have you been coping w.r.t to business since the lockdown? Are the tenants making their payment or have you given them some sort of relief?
As a managed office operator, we have felt the impact of the lockdown with respect to new commitments, delay in decision making, expansion plans being put on pause, lease restructuring, renewal and escalations are happening since occupiers everywhere have, at least for the time being, suspended all major leasing decisions and long-term commitments which has slowed the momentum of growth for us.
Our tenant portfolio consists of top international companies and multinational corporations, which is by far, a more stable customer segment in terms of financial muscle when compared to the segment of startups and SMEs which is mostly catered by coworking players.
What are you expecting post lockdown w.r.t tenant movement?
Since we offer a 360-degree outsourced office management solution to enterprises, the revenue model is based on a service fee rather than number of seats. When our clients sign a lease with us for a managed office, they opt for a package of real estate services against which a service fee is charged. We are aware that businesses around the world are rethinking their workspace requirements to cope with the current times. Many of our clients too have asked us for support in navigating through this. The current situation demands for a way to reduce costs while maintaining flexibility, and to meet that demand we have developed a ‘reverse office’ model to fulfill the dynamic demands of growth-driven enterprises. With our Reverse office model, enterprises get tailored solutions which optimally utilize the existing real estate either by consolidation or by monetizing parts of lease. This option allows for financial and operational flexibility, as organizations steer through difficult times.
What are the possible changes you might have to make in the lease agreements going forward?
- Force Majeure, exit and rent abatement clauses are likely to gain special preference in future lease contracts.
- Negotiations in general and especially over such clauses will become more difficult and a balanced solution will be needed, adding to longer lead time when closing deals.
- Also, similar to what we witnessed in the aftermath of the 2008 global financial crisis, KPIs (Key Performance Indicators such as footfall ratio, conversion rates, tenant turnover etc) will evolve and emerge as significant contributors to the terms and quality of lease since the demand for Grade A assets is likely to go up in the upcoming quarters.
How do you plan to manage the added cost of maintaining health and safety norms post the lockdown across all your buildings? Will this be passed on to the tenants?
There is no doubt that to equip a workplace to accommodate the ‘new normal’ operational costs will go up considerably. The current times have paved the way for more touch-free facilities, antimicrobial fabrics and fittings in interiors, complete fumigation, and changes in workspace design keeping in mind social distancing. Since Skootr operates in only Grade A assets, the transition has already begun and is going smooth for us. Yes, there will be some operational improvements to adapt to the COVID-19 situation, which will incur its own set of expenses, we are certain that our client-driven solutions & ‘quality-consciousness’ since the beginning will bear fruit for all our stakeholders, without adding significant financial burden.
What are the design changes you expect in co-working spaces in the coming months to accommodate social distancing? How are you preparing for the same?
At Skootr, we have developed an exhaustive handbook on recovery readiness and workspace facility management which contains a step-by-step guide to combat COVID-19 when people return to the workplace.
The critical elements to workspace design include placing the workstations at a distance of six feet from each other, markings on floor indicating the clockwise movement of personnel while maintaining distance between each other, control access, placement of touch-less soap dispensers and hand dryers in all washrooms, building automation through Skootr App, self-isolation ward within the office premises, sourcing of antimicrobial fabrics and fixtures to help maintain integrity of interiors without compromising on the safety and hygiene standards.
What is the long-term future for the co-working industry in the country?
We feel that the stable and capitalized players in the managed office category dealing with large enterprises will most likely survive the churn and continue with strong fundamentals. On the other hand, consolidation might be seen for smaller coworking players, wherein a few of them may even exit the segment.
The ramifications of the novel Coronavirus can be traced across the entire real estate spectrum, where factors such as reduced demand and delayed business decisions are creating significant impediments to business operations. Having said that, we anticipate a strong realty rebound in future. Also, as we expect things to settle down over the next 9 to 12-month horizon, the recovery curve of the sector will depend tremendously on the fiscal stimulus rolled out by the Government.
However, the office sector is expected to witness a U-shaped growth curve ultimately with softer rental growth in the initial phase.