The new co-working reality

This article first appeared in The Edge Malaysia Weekly, on May 18, 2020 - May 24, 2020.

Juhn: We were fundamentally built for situations like this

Benjamin: More mergers and acquisitions will occur

Akinci: A lot of co-working spaces that mirrored WeWork’s business model will bow out

-A +A

IT is back to business for co-working players with the recent ­easing of the Movement Control Order (MCO) but the operating landscape is far removed from what it was before the Covid-19 pandemic.

Even so, industry players are adapting quickly to the new normal, identifying pockets of opportunity in the tough business environment.

Common Ground co-founder Juhn Teo sees a silver lining in the chaos wrought by the pandemic as corporations are seeking co-working companies’ expertise to help with new strategies and configurations for their organisations.

This includes larger corporates, which want to make a shift to a “core and flex” workplace approach where the headquarters will house just the core teams or back office, while the rest of their workforce have the flexibility of working from a variety of Common Ground’s suburban locations.

“Ultimately, Common Ground is a flexible office space provider, so in a way, we were fundamentally built for situations like this,” Juhn tells The Edge in an email interview.

“[With] our ample venues, spacious workspaces, split-team operations responses, flexible membership types and short-term leases, we are optimised for alleviating the business-operations aspect of pandemics,” he points out.

Director of Co-labs Coworking, Benjamin Teo, believes there will be a higher corporate demand for remote workspaces as large corporations look to de-centralise and “de-densify” their offices to accommodate split operations.

This involves dividing employees into different teams and rotating shift schedules, he explains. “Overall, we are bullish about the prospects in co-working as we foresee more companies, especially larger ones, looking to conserve cash and retain flexibility, rather than risk committing to a long-term office lease,” Benjamin adds.

In order to adapt to the shift in market demand, Co-labs ­Co­­­working has made adjustments to its floor plans to accommodate social-distancing measures and new seating arrangements. The company is a subsidiary of Paramount Corp Bhd.

Both Common Ground and Co-labs ­Coworking reopened their doors in the past week after the easing of the MCO, and are cognisant of the need to implement strict safety and hygiene measures.

The measures they have put in place include mandatory member and visitor temperature checks, daily screening, providing hand sanitisers, increasing the frequency of cleaning and a reduced seating capacity to ensure social distancing.

Both players have responded quickly to new market requirements by offering business continuity plan packages. Their services also include various packages and relief for members who are experiencing tight cash flow.

Common Ground co-founder Erman ­Akinci says there was a surge in requests recently from companies needing to locate their workforce to alternative office spaces quickly or wanting to implement split-team structures.

“As these companies prepare their teams for going back to work, they’re looking for flexible office spaces without crowding their own,” Akinci says.

“Overall, it’s encouraging to see that people are adapting quickly to the ‘new normal’ and a new set of best practices in our venues. In fact, people expect new safety measures in our spaces.

“Everyone’s been very cooperative and also hyper vigilant about their personal hygiene upkeep. We expect that if we can demonstrate we have good safety and hygiene best practices implemented, our members will be quite keen to be back in the office,” he adds.

 

Stronger players better positioned for M&A

In these unprecedented times, Benjamin believes the co-working market will be soft and larger industry players with stronger cash flow and liquidity will be able to ride out the storm better.

“In this aspect, I predict that more mergers and acquisitions will occur. Larger players may also reduce the number of locations and shut down unprofitable locations with a low occupancy rate.

“Co-working space operators must pivot their strategies according to market needs with business models and offerings adapted to the new normal. I believe there will still be demand for workspaces but (it) will be skewed more towards corporates who are seeking alternate workspaces to support their business continuity plans,” he says.

Akinci reckons smaller players will drop out as they lack the large community, connectivity and resourcefulness of the larger players.

“I think we will also see a lot of co-working spaces that mirrored WeWork’s business model bowing out as they are locked into a lot of contracts with their landlords that are unfavourable — and during times like these, with the pandemic and recession, leases involving heavy financial payments can really be a deal breaker.

“Moving forward, I think a lot of co-working spaces may opt to change their business models to something more similar to what Common Ground does. We typically enter into a JV with the respective landlord whenever we open a new venue. We emphasise strong partnerships and, in times like these, nurturing and building solid relationships really pays off,” Akinci adds.

 

Longer path to profitability

With the Covid-19 pandemic upending economies all over the world, how has it affected co-working businesses’ earnings and path to profitability?

Akinci points out that Common Ground’s Malaysian and Philippines businesses are already profitable, and that “the challenge now will be in maintaining that with the economic headwinds that may arise from the respective national lockdowns”.

Common Ground has 14 co-work­ing spaces in Malaysia, five in the Philippines and two in Thailand.

“Our Thailand business, on the other hand, is essentially an early-stage start-up as we only opened our doors there late last year. So we’ve certainly had to re-forecast the numbers for that country’s business and our profitability there will be delayed till later this year,” he notes.

Benjamin says the disruption caused by the pandemic will result in two of Co-labs Coworking’s four spaces taking longer to achieve profitability.

“The co-working business currently contributes less than 5% of Paramount’s earnings and is part of its investment strategy to diversify and boost revenue from recurring income.

“We have been on an expansionary mode since last year, investing in three new co-working spaces: Co-labs Coworking Naza Tower, Co-labs Coworking Shah Alam at Sekitar26 and Co-labs Coworking The Starling Plus,” he says.

The spaces at The Starling — its maiden venue — and Sekitar26 are already profitable.

Few businesses will be unaffected by the Covid-19 crisis, and the co-working industry is no exception. Even so, Benjamin prefers to look on the bright side: “Call me an optimist, but I believe that the co-working industry will emerge from the Covid-19 crisis stronger and more important and necessary.”

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.