Now, such excesses are not that common. But the flex-working spaces of WeWork, the company that pioneered the element of ‘community’ in shared workplaces, continue to remain colourful and exciting. More so in India.

On a Tuesday morning in January, the 13th floor office of WeWork India, at the Salarpuria Sattva Magnificia building, in Bengaluru’s Old Madras Road, buzzes. Here, for a ₹450 day-pass, one can work from any of the three floors the company operates. The sprawling open area in one of the floors has a reception at one end and an open pantry at the other side. Techies and designers are busy at work, sitting on long tables. Some work out of a lounge area. A foosball table and a table tennis room await anyone who needs a break.

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The buzz is a sure sign that flex-working has made a comeback in India after a pandemic-induced slump. Flex-work has numerous nuances and one of them is co-working—it means individuals and small teams of companies sharing workspaces. Flex working spaces, overall, also include private offices and managed offices.

All shared businesses were written-off when covid-19 struck. But the critics, we now know, underestimated the need for a ‘community’. Also, flex-working gave enterprises the flexibility to scale-up and down quickly, quite a handy solution in uncertain times.

WeWork India, in which parent WeWork Inc owns about 27%, is certainly riding high. The India business started in 2017 when the New York-headquartered company entered into a joint venture with Indian developer Embassy Group. In five years, the office space provider has grown to operate over six million sq ft, across six cities—Bengaluru, Mumbai, Pune, Hyderabad, Gurugram and Noida. While many flex-working companies went after just startups, enterprise customers constitute 70% of WeWork India’s clients. This mix is important for both revenues and profitability. Remember, startups are in the middle of a funding winter and are retrenching. Larger corporates in the mix cushion such a hit. In 2022, the company hinted it is progressing towards profitability. While its revenues grew to ₹1,300 crore from ₹760 crore in 2021, WeWork India stated that it turned in an Ebitda of ₹175 crore in 2022, from a loss of ₹120 crore the previous year. Ebitda is earnings before interest, taxes, depreciation, and amortization.

The company continues to make aggressive but measured forays. By March this year, it expects to operate 6.5 million sq ft, or about 75,000 desks. By March 2024, it expects to add another 20,000 desks.

While claims in India’s flex-working industry should be taken with a pinch of salt, WeWork India stated in a media statement from October 2022 that it was “India’s largest office space provider, aimed at creating flexible workspace solutions for companies of all sizes”. And outside the US, India is probably the fastest growing market for WeWork Inc. The Indian affiliate is now evaluating an initial public offering (IPO), according to people in the know.

The growth and profitability numbers are even more striking when one compares it to the troubles of the parent entity. Adam Neumann, the co-founder of WeWork, stepped down as the chief executive in 2019, after the company’s stock market listing ran into trouble and investors aired concerns about governance. In 2020, Sandeep Mathrani was appointed as WeWork’s global CEO with a mandate to stabilize the business. But profitability remains elusive. In the three months to September 2022, the company reported a net loss of $629 million. In the first nine months of 2022, the firm lost $1.8 billion.

In November, the company said it is closing 40 locations in the US to cut costs and turn a profit, The Wall Street Journal reported. And earlier this month, WeWork Inc said it plans to cut about 300 roles globally.

How did WeWork India do so well?

Eye on unit economics

Rahul Jadhav, 34, has always worked remotely, renting tiny office spaces, until he went to WeWork’s Koramangala centre in Bengaluru two years ago. Jadhav rents a hot desk, and pays about ₹14,500 a month, including goods and services tax. Although WeWork turned out to be a tad more expensive than his earlier arrangement, he is happy.

“It’s a good place for networking; has open spaces; a terrace garden,” said Jadhav, a content publisher, focused on the Game of Thrones series. “It offers the best work environment for someone like me who has always worked remotely. Now, I am looking for a place to stay but it has to be close to this WeWork centre.”

WeWork India, ever since it started, focussed on catering to a space that allows interactions; allows people to create a business or social relationship. Jadhav alludes to this. What he does not say but has a strong underplay in making these relationships possible are three things. Operationally, flex-working is a combination of real estate, hospitality, and technology. Operating the three requires expertise and creates a natural barrier to scale.

In 2019, there were over 300 flex-working operators in India—in a bubble, the barrier to entry seems low. According to some estimates, about 60-70% of these businesses have now consolidated among the top 8-10 players.

Operators with strong management and sound financial muscle, like WeWork India, gained. Through the pandemic, the company focussed on execution and optimizing costs. “We are a bit conservative now and focusing on profitable growth,” CEO Karan Virwani told Mint last year.

WeWork did not respond to this publication’s request for comments or a meeting for this story.

WeWork wants to make sure they are providing meaningful spaces, without going after every opportunity, said Ram Chandnani, managing director, advisory and transactions services, CBRE India, a real estate advisory firm.

The company, which is planning to open a centre in Delhi now, has largely stuck to its six-to-eight city expansion strategy. Most other operators have started centres in tier-2 cities, to leverage the remote work model. “The focus on unit economics and profitability has helped WeWork, unlike the aggressive expansion mode it was planning pre-pandemic,” said a person familiar with the company’s plans.

In earlier media interviews, Virwani had underlined that the key to profitability is in how a flex-working operator manages the rental—before offering flexible spaces to clients, flex-working companies have to first lease office spaces themselves unless they are also the developer of the property. Office landlords themselves, the Embassy Group knows how to get the best deal on rentals. And even before the pandemic, the company maintained an eagle’s eye on the efficiency of operations. It focussed on keeping the cost of cleaning, the consumables, to a level that made economic sense.

WeWork India also has a wider basket of offerings, which helps the company ride out volatility better than rivals. Today, it offers day passes, hot desks, dedicated desks, ready-to-move-in private offices, managed offices and virtual offices.

“Larger operators who moved towards managed offices, will likely benefit, because that’s where demand is moving,” said Viral Desai, senior executive director, transactions, Knight Frank India.

The company, meanwhile, is exploring new revenue streams. Besides desks, it rents out its spaces for shoots and events. And in October last year, it invested in Zoapi, a Bengaluru-based conferencing and collaboration platform. As companies mostly have a hybrid work policy—a mix of working from office and remotely—Zoapi can help WeWork offer video conferencing and related services. “By combining our technologies, we wish to take Zoapi to a larger audience, and facilitate seamless communication for businesses of all sizes,” Virwani had commented last year.

Flexing muscles

Investors often side with businesses whose business plans can hit a scale. They definitely see a potential in WeWork India.

In December last year, the company raised ₹550 crore, or around $66.5 million, from BPEA Credit, a private credit platform.

Avendus Capital was financial advisor to WeWork India on the transaction. “This fundraise by WeWork India strongly underscores the increasing confidence of the investment community in the growth prospects of India’s flex workspace sector. This would be one of the largest transactions in this sector and we are confident that it will open up many such investment opportunities,” Prateek Jhawar, managing director and head of infrastructure & real assets investment banking, Avendus Capital, had said after the fundraise.

In 2019, WeWork had raised ₹500 crore debt and then, $100 million from WeWork Global in 2020—the capital offered reinforcement at the peak of covid. Next, the company raised ₹200 crore in debt and equity in 2021.

The financial muscle it worked on kept the company ahead of the game.

Does competition matter?

With the flex working industry consolidating since 2019, WeWork India probably has stronger competition now. Rivals include Table Space, Smartworks, IndiQube, Awfis, Simpliwork Offices and CoWrks.

Some of them are expanding aggressively—they have launched operations in multiple cities—beyond the metros. While IndiQube, Table Space, and Smartworks focus on enterprises and managed offices, Awfis maintains a mix of co-working space.

IndiQube’s revenue shot up 50% last year compared to 2021, with growth driven by Indian companies. The company has an operational footprint of about 5 million sq ft; it expects to add another 1 million sq ft this year, co-founder and chairman Rishi Das said.

Smartworks, backed by Singapore’s Keppel Land, said it currently has an operational portfolio of 6.5 million sq ft; 1 million sq ft more is in the pipeline. A year ago, Smartworks only operated about 4 million sq ft. The company plans to grow to 10 million sq ft by the end of 2023. “Demand in 2022 was so robust, we almost doubled the footprint,” said founder Neetish Sarda.

Meanwhile, Awfis, which operates 150 live centres, plans to double the count by 2023-end.

“WeWork today is putting its global tools to use, in terms of the product offerings, technology, experience and curating solutions for clients. But it will come down to execution and delivery, as it also faces competition from Table Space and others,” said another person with knowledge of the company’s plans.

Does more competition lead to pricing pressure in this business?

WeWork, experts said, has not compromised on the quality of buildings or tech parks it leases. Therefore, it continues to command a premium pricing. However, the company does discount in other ways. Currently, it is offering a 20% discount on day pass bundles (5-10 days).

Some of WeWork’s rivals do have the financial muscle needed to stay relevant. Take the case of Table Space, which last year, raised about $300 million from global investment fund Hill House Capital—one of the largest investments in the sector. The funding helped the firm to expand rapidly.

Property consultants, however, said that in view of the growth momentum, operators would need to raise even more capital to fortify their positions. Given the funding winter, this may not come easily now. Expect further consolidation in the market, they added. The big will gobble up the small. Those who stay relevant over the next 24 months, may explore public offerings to give their investors an exit while raising money.

“Any business that is profitable would interest investors. It is a branded business model that promises long-term cash flows and high returns. It’s a contractual service business, which should not be mistaken for real estate. We are likely to see public listings of such service providers of scale in two years’ time,” Jhawar told Mint.

As WeWork India prepares for a possible IPO, it would have learnt its lessons from WeWork Inc’s debacle in 2019, when it aborted its public offer. And from the beating the company’s stock has taken, more recently.