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Budget 2020: Co-working companies look for booster shots

Budget 2020: Co-working companies look for booster shots

Despite the massive growth of the co-working sector, experts believe that there will be a wave of consolidation to hit the sector- Smartworks's Neetish Sarda authors

Neetish Sarda, Smartworks, Co-working space provider, Coworking, Budget 2020, Booster shots, Consolidation, Tax, Revenues, Growth

Co-working has changed the very concept of the workplace today. Tracing back, no one predicted that such a new trend would evolve and stay around for the world to sit up and notice.

The needs of the millennial workforce have seen massive shifts.The Deloitte global millennial survey 2019 highlighted many insights. 47 percent of millennials aspire to make a positive impact on communities, nearly 15 percent are dissatisfied with the work culture, and 49 percent of the millennials would, if they had a choice, quit their current jobs in the next two years.

As per the survey, companies must focus on learning and knowledge-based workshops, emphasize on inclusion as well as diversity and focus on enriching the lives of their employees to keep them motivated. Co-working caters to all of these areas.

Without a doubt, co-working as a concept has gained increased acceptance. What is the reality today?

Consolidation: Despite its massive growth, experts believe that there will be a wave of consolidation to hit the sector. Co-working spaces that are not profitable will likely be left to either merge or be acquired by the larger, more sustainable companies.

The entry of major players: The co-working sector has also witnessed the entry of significant realty players. It is, therefore, a highly value-centric market, when we focus on India. And, an essential element is that here, affordability plays a vital role.

As demand for co-working continues to grow, operators will continue to find new practices that can forge ahead – to improve both the experience and the development of their co-workers.

Growth of Co-working

The collaborative space segment has seen up to 300% growth in the last three years, with many firms expanding aggressively across major cities. The trend is likely to continue in 2020, too, as all signs point in this direction. And, remember, their share in overall leasing remained high in end-2019.

Future of Workforce in Co-working space segment

Millennials and Gen Z are very much in the line of visibility today. By 2020, as far as the global workforce is concerned, it is expected that millennials and startups will constitute 50%. Interestingly, the co-working storyline in India has at the core of this impactful segment, which will continue to steer demand.

With all the buzz around, co-working spaces, what are the expectations from Budget 2020

Increase in institutional funding: It is a fact that funding for co-working spaces has gone through an evolving phase and has indeed grown in stature. Institutional capital is crucial to co-working spaces, which are dependent on funds as they are involved with variables such as customer service, design & technology. So, logically, we can expect advancement in this direction.

The search for funds intensified in 2019. Large players in India, interacted with institutional investors in 2019, to raise money, while others, to some extent, have already closed funding deals to enter new markets and to increase desk counts across cities where they already had a substantial presence.

Further, to increase funding in co-working spaces, the government should provide investment benefits to investors of these co-working spaces.

This search for funds will intensify in 2020. The government must allow banks to give loans to co-working spaces against the cash flow of co-working players.

Seeking solution to registration complexities: Different yardsticks are used by different RoC (Registrar of Companies) to accept the virtual office product. And, as far as the company registration process goes, the government must create guidelines to recognize the virtual office as a separate product.

Co-working spaces are on the lookout for working out a mechanism between co-working players and landlords to simplify matters of existence. Currently, only the company itself can change its registered office. The landlord has no way to inform them that the company does not sit out of their space anymore.

Tax Exemptions: Expectations are for a new TDS bracket for service payment to co-working spaces. TDS exemption, wherein clients for co-working spaces don’t need to deduct TDS. The Tax holiday was welcomed – under section 80-IAC wherein 100% deduction of the profits and gains derived from the eligible business for a period of any three consecutive assessment years out of a block of seven years beginning from the date of incorporation of the eligible startup was given.

However, most co-working companies are not falling under the threshold to claim deductions under the definition of the eligible startup. Hence, a similar section for the co-working industry is expected.

The government should provide for allowance of capital expenditure incurred by the companies in the co-working segment.

And, another wish in the pan is for lower GST that companies pay to co-working spaces.

Further support for startups to be able to grow and to support the market/ecosystem for growth prospects are:

– Capital gains on unlisted startup on par with listed equity & tax benefit to angel investors for investing in startups.

Perhaps, the attempt is to work towards this – when it comes to tax time, where you work can also impact your bottom line!

Space Allocation: Space is a constraining factor for office spaces, and the cost factor adds to the woes of startups today. If wishes were horses, they would indeed ride!

So, could this be made possible? Provide unused/underused government buildings at a subsidized rate or in a revenue-share manner to co-working spaces. This can help entrepreneurs get access to excellent infrastructure and can also go the extra mile to generate the growth of the ecosystem at a very low rate.

Reaching out to regional India: Is this phenomenon only emerging in urban India? Not really. Co-working spaces were set to boom in tier-II cities, as it was predicted in 2019 that the total space in this sector could reach about 6-10 million square feet by 2020. This is very positive for the entrepreneurial ecosystem in India.

So, 2020 should augur well for this segment, which is expected to target secondary markets in Tier I cities, along with significant micro-markets in tier II and tier III cities as well. We can hope for a boom in the co-working ecosystem here.

Finally, the co-working model is targeted at audience that would like to offer value-for-money services to the members and continue to communicate positive ideas and values.

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