In today's Finshots, we talk about the co-working industry in a post-COVID world.


The Story

The prediction has been made — “Co-Working is Dead”

Offices across India are empty. Work from home is gaining traction. Co-working companies are already piling on unsustainable levels of debt and with threats of a recession looming large, it’s only logical to presume that the industry might not survive for long.

However, this is a rather simplistic prognosis. Industries don’t disappear overnight. They simply evolve.

In the short term, co-working spaces will have to make a few adjustments. Clients may no longer prefer working in densely packed office spaces anymore and co-working companies might have to reorganize their office space (wherever possible) to reassure customers. They might also have to look at other things like ventilation, best sanitary practices and hot-desk policies. Earlier you could waltz into a room, pick a desk and start chugging along in your safe space and nobody would bat an eyelid. But since people are particularly sensitive about touching foreign objects these days, maybe the ground rules will have to change a bit.

But changing ground rules isn’t all that simple.

As an article in the Vox notes —

That effort could include everything from higher-quality air filtration systems to more-powerful cleaners. Every surface — including door handles, light switches, countertops, copy machine buttons, AV equipment, coffee makers, and many more — will have to be dealt with. This shift could also include the addition of things like copper fixtures, fabric that retains fewer germs and can more easily be cleaned, more space in kitchens and bathrooms, as well as more attention paid to how far liquids can splash. Some companies could even use UV lighting to disinfect offices at night or meeting rooms in between uses, a practice that’s increasingly common in hospitals.

And these things cost money. But it won’t stop there.

Right now most co-working companies work on a rather simple premise. They lease buildings after tying themselves into multi-year contracts and then rent out small office spaces to prospective startups on a short term basis. This isn’t a problem so long as you have new customers walking in the door all the time. However, during a pandemic, your short term cash flows dry up and those long term lease arrangements devolve into major liabilities — both literally and figuratively.

Most companies take on more debt to tide over the crisis. But this only bloats your interest expense. And if you can’t secure funding from some of your early backers, you’ll be in a tight spot. So in effect, tweaking your business model in a post-COVID world can be challenging as well.

And that leaves us with a rather sombre reminder — “Maybe co-working is going to die”

However, optimists disagree. A recessionary environment often means companies will have to downsize or liquidate their office space completely. They’ll want to move into a flexible co-working space until they can shore up cashflows. For instance, a startup we spoke to terminated their lease agreement and confessed that they’d be working out of a co-working space soon enough. As the founder succinctly put it — “You can’t get work done at home, bro. You just can’t”

So even though, co-working companies might see many clients move out permanently, they might also see an influx of new clients who’ll be looking to survive.

Besides, not all co-working companies are made equal. Some adapt quickly. Some take time. Some are too big to move. Some, very nimble. To club them all together and make bombastic predictions about their future without considering other events might not serve you well. If history is any reminder, co-working companies like other companies elsewhere will emerge from this crisis one way or another. It’s quite possible that some of them will go bankrupt during this time. It could be that most companies might not bear the same look two years from now. It’s also possible that they might halt expansion and focus on the bottom line. But the industry, in all likelihood, will survive.

Until then...

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