Back to Growth: Interview with Karan Virwani, CEO, WeWork India
1. How do you see the major trends witnessed since Covid-19 in your sector pan out in 2021? Has the pandemic fundamentally changed the sector’s position in India? Or will there be a return to a pre-Covid “normal?”
The flexible workspace industry showed exponential signs of growth in 2019, witnessing a 55 per cent increase in footprint and an addition of 9.7 million square feet. However, this momentum was halted by the outbreak of Covid-19. While public health concerns dampened the growth of the industry, there are signs that the industry is gradually getting back on its feet and in the next one or two years could see a large-scale consolidation that should favour organised players.
According to a report by JLL, ‘(re)Imagine flexspaces: A 360 view’, the flexible workspace industry is gradually also growing out of Covid-19 induced losses, and it is projected that the size of the flex space market would cross 50 million sq. ft by 2023. The penetration of flexible spaces in total office stock is expected to steadily increase from the current 3.0 per cent to 4.2 per cent by 2023. This is not at all surprising when we realise that such flexible spaces are ideally positioned to cater to the post-pandemic world.
After working from home for close to a year, the working population is eager to return to office spaces. The reasons are that the WFH model has revealed some evident obstacles to productivity, collaboration and innovation. Flex spaces are stepping up to this need and adapting to the ongoing health crisis through robust health, hygiene and safety protocols alongside other practices that include social-distancing, de-densifying workspaces and ensuring medical assistance. In fact, internal insights from flex operators in the JLL report indicate that more than 60 per cent of the occupiers are ready to return to flexible workspaces once the lockdown eases and there is a significant surge in demand from large enterprise teams as they are now looking for benefits like flexibility, pan India access, strategic partnerships, and so on.
2. What are your expectations for the sector in 2021? Do you foresee a period of job creation across the country?
According to the ManpowerGroup Employment Outlook Survey that covered 1,518 employers across the country, the employment trends in the first quarter of 2021 is expected to be on the rise with a Net Employment Outlook of 5 per cent.
Moreover, with the vaccine drive currently underway, as well as businesses finding their feet again, we feel employment should get a boost in 2021. Businesses are also adapting to a new normal that allows professionals to collaborate and innovate in cost-effective ways. Greater acceptance of remote working will also pave the way for a hybrid-working model in the coming future. To reinforce this evolving trend, a recent Naukri.com survey of over 4,000 jobseekers revealed that a majority of jobseekers (59 per cent) prefer a hybrid model of working.
With hybrid-working models coming in the picture, a lot of enterprises are looking for ways to reduce their real estate commitments. Also, going forward, a lot of impetus will be laid on IT infrastructure, security and automation. Flex workspaces provide a direct answer to these enterprises by offering turn-key office solutions that allow co-workers to move in and start working after minimal set-up time.
3. What could be your strategy to boost aggregate demand in the sector going ahead into 2021?
The flexible workspace sector is well-positioned to see an enhanced demand in 2021 because of the cost-optimal and accommodative models that flex office operators offer. In the post-pandemic world, businesses of all sizes will prefer flexible office spaces that can absorb dynamic team sizes at relatively lower prices. Flex spaces provide such services thereby guaranteeing steady growth in the near future.
Other facets to keep in mind include guaranteeing safety, hygiene and ensuring state-of-the-art tech at subsidised costs. A lot of innovation will go in designing office spaces to ensure touchless and contactless existence, without letting go of social interactions that a workplace enables. This shift in how Indians work and thereby how companies operate in a post-COVID world should benefit flex space operators like WeWork.
Besides infrastructural innovation, creative solutions have been put in place to boost demand. One of the most interesting global pilots we ran at WeWork in 2020 was in association with New York University (NYU), wherein we set up a satellite campus in Shanghai, China for 3,000 students. Such a model can be replicated in India as well in order to blend the spheres of ‘school’ and ‘office’ in a flexible space where students utilise technology, learn with their peers, and most importantly, see creators and businesses at work.
Another such initiative is the WeWork On Demand app, which allows freedom to choose a workspace at one’s convenience, on an hourly or a daily basis, with amenities including access to sanitised working booths, high-speed internet, on-site community support and other such services. This product will now allow working professionals to optimise their time spent at the office wherein they can continue to be flexible whilst also having the option of using an office on the go.
4. In your opinion, is India a lucrative destination for foreign investors? How have the pre-existing trends in infrastructure development been altered with the events of last year? How does India’s change in focus to becoming a manufacturing hub help the construction sector and its prospects in India?
India is definitely a lucrative destination for foreign investors owing to its talent pool and the ever-growing millennial population. However, illiquidity and delayed implementation have been growing concerns for investors.
Some of the pre-existing trends in infrastructure development have or will be altered in a post-Covid world. Risk mitigation has become a priority for real estate developers, which we feel will exacerbate the need for quality office spaces owing to their agility, affordability and flexibility.
To incentivise investors to invest in this sector, we believe flex spaces should be introduced to the larger conversations on the National Infrastructure Pipeline and investments in the sector should be permitted under the government’s National Investment and Infrastructure Fund (NIIF).
5. Going ahead, what are the three most important things that you would want in budget 2021 for your sector?
- Enable input tax credit for the commercial real estate industry on the procurement of goods and services during the construction phase. Section 16 read with Section 17(5) of the CGST Act could be amended to ensure that real estate players avail ITC (input tax credits) on Works Contract Services. The benefits could be passed down to the flexible workspace industry as one of the key beneficiaries and would spare the segment 18 per cent levy.
- Allowance of GST credit on the construction/purchase of commercial property for the purpose of earning lease rentals—the fundamental theme of GST to abolish the cascading effect of taxes and provide seamless credits. However, as per the current regime, the GST credit is not allowable on construction/ purchase of property which is subsequently leased out. The GST law could be suitably amended to allow the credit of GST incurred on construction of commercial and rent generating assets.
- Institutional backing needs to be provided for flexible workspaces. Flex spaces are capital-intensive businesses and revolve around multiple variables such as design, technology, and customer service. For a business that thrives on the economies of scale, the backing of institutional capital can be the crucial differentiator.
- In order to accommodate the upcoming workforce, flexible workspaces should be an important part of the Smart City plan. The government should engage with flex-space owners in order to build such infrastructure and expedite its implementation.
- Keeping in mind the pandemic and lockdown situation, lease-related laws and bylaws should be re-examined. Given the challenges of the pandemic, financial support and relaxation need to be given to landlords as well as tenants on loans/ EMIs.
* The views and opinions expressed above are solely of the interviewee. The content does not reflect Invest India's position or opinion and Invest India bears no responsibility for the same.