India’s co-working sector wants recognition under real estate, tax benefits as flexible workspaces aim for a significant revival in the post-COVID era

• India’s burgeoning co-working space was almost handed a death certificate at the beginning of the COVID-19 pandemic. But as companies are now looking at flexible work options for their employees, co-working spaces in India have a chance at a bright future again.
  
• And to turn the tides in their favour, the sector has a list of demands from the government with the upcoming Budget 2021.
  
• At the top of their list of requirements is their need to be recognised within the real estate sector.
  

With 2020 becoming the year of 'work from home' becoming the new norm, commercial real estate and office spaces took a significant hit. And among them also lies India's burgeoning co-working space, which was almost handed a death certificate at the beginning of the COVID-19 pandemic. However, as companies look to realign in the post pandemic era with flexible work options for their employees, India's co-working spaces have a chance at rebuilding a bright future again.


“As companies look to resume business, redesigning and restructuring of existing real estate will pose yet another challenge; however, coworking spaces will be able to respond to design changes required post-COVID-19 quicker and more efficiently than traditional office spaces,” said Manas Mehrotra, Founder, 315Work Avenue, a co-working firm


However, according to a Knight Frank report, the share of the co-working sector in new leasing declined from 7% in H1 2019 to 3% in H1 2020. Transactions in the sector fell massively in the first six months of 2020.



Source: Knight Frank


And to turn the tides in their favour, the sector also has a list of demands from the government with the upcoming budget 2021.



Recognition under REIT


At the top of their list of requirements is their need to be recognised within the real estate sector. “As coworking is playing a vital role in the economic growth of the country, the Government should recognise it under special schemes like real estate investment trust (REIT) and provide tax benefits to handhold the industry for better growth,” said Mehrotra.


In India, co-working spaces account for 6.9 million square feet, taking up a significant portion of India’s commercial real estate.


And that adds to the seek of recognition, believes Amit Ramani, Founder & CEO, Awfis. “It seems apt that coworking should be provided with infrastructure status. This will ensure easier access to institutional credit, simplify the approval process, and help in reducing developer’s cost of borrowing,” said Ramani.


Ramani’s Awfis has expanded its reach even during the lockdown, having opened in cities like Ahmedabad and Chennai.


Need for Institutional Capital


The co-working sector needs a financial push from the government. Expansion across the country, especially into the Tier 2 and 3 markets, would also require creating financial instruments and loans for the sector, believes Ramani.


But Mehrotra also makes a bold claim. “The government must also allow banks to give loans to coworking firms against the cash flow of coworking players. Also, to increase funding in the co-working sector, the government should provide investment benefits to investors of these co-working spaces,” he said.


For co-working to get a deeper push in India, government support is required


As offices have discovered the success of remote working, many startups and businesses are looking to move away from the leased model. They are instead looking at flexible options along with work from home. According to a report by JLL, office absorption in India reduced by 40% in 2020.


And here’s where co-working players believe they fit in well. However, for better reach across the country, the sector needs support. “We look forward to the union budget with the hope to be presented with allocations to provide relief to the real estate sector. Since the industry was reeling under a liquidity crunch witnessed with unprecedented challenges, new reform and benefits will help drive demand for flexible workspaces,” said Nidhi Marwah, Group Managing Director-South Asia The Executive Centre.




Source: ANAROCK Research



Call for lower GST rates
Currently, co-working spaces charge GST of 18% to all their clients, which are mostly startups and small businesses. Mehrotra believes that GST reduction to the lowest slab for upcoming startups would significantly impact their budget, which would help co-working spaces retain them as long-term clients.

Meanwhile, Ramani pointed out that currently, coworking firms cannot claim input credits on work contracts and construction services, as detailed under GST provisions. “Easing this hurdle would help to increase the outflow of cash and prevent financial difficulties. Input tax credit under GST can be extended to developers who can pass it on to companies taking up seats and thereby reducing their overall costs,” he said.


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