Co-working Spaces Reduce Corporate Real Estate Risk

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Is it true that big corporations moving out of self owned/leased premises to co-working spaces because Co-working Spaces Reduce Corporate Real Estate Risk?

Whenever a company starts a business, it takes various risks to make it a profitable venture. These involve strategic risk, i.e., the plan of activities which the company adopts to succeed, compliance risk which relates to the current policy and laws, the operational risk that concerns activities for its smooth running and financial risk, i.e., investments, earnings, and expenditures among other significant risks.

Financial risks are mainly in the form of liabilities and expenses. When the company’s annual revenues continue to remain below its annual expenditure from one fiscal year to another year, its survival becomes improbable, and it faces an inevitable fate of bankruptcy.

Corporate history is witness to the fact that companies, which once ruled the business world in particular business verticals went into oblivion at another point of time in future, for they failed to keep pace with the changing time.

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Lehman Brothers, PanAm, Compaq are a few such instances. Despite adopting all risk management strategies, these companies couldn’t withstand the test of time. Reasons can be plenty. While some couldn’t upgrade themselves with the technology, others gave in to the business rivalries.

If a company is agile to adapt to all conditions, circumstances, and environment, its chances of survival are much more than any other group which follows a rigid business plan.

Co-working provides flexibility in the operational risk of a company. If real estate risk, which is a significant chunk of operational risk for any corporate, is adjustable, it enhances the company’s chances to sail through in tough times.

Various studies have shown that the real estate takes the biggest pie of the company’s spending. It can further go up depending upon the location of the office. So when a company, which is a startup firm, begins its business from a co-working space, it makes a lot of sense.

Co-working Spaces Reduce Corporate Real Estate Risk | Commercial leasing risks companies’ capital  

While residential real estate is facing recession, the commercial and retail property has still held its nerve, and so the prices are soaring up. Taking office on lease makes the biggest dent to the working capital. The terms of commercial leasing are also fixed for five or seven or even more years.

Companies not only have to make massive advance security deposits against the lease but they also have to make interior furnishing and arrange office equipment for make it professional workplace. In this process, a significant percentage of capital gets blocked which could have been used for other important activities.

But when the same company shifts to a co-working space, its real estate risks are considerably reduced as it doesn’t have to pay for a huge area or its furnishing. It can reserve seats for its staff for any period.

The leasing terms of a co-working space are considerably simpler and safer than that of a full-fledged office complex. Co-working models provide multiple leasing terms. For instance, a company can take on rent as many seats as it needs and chooses leasing terms on the weekly, monthly or yearly basis.

Co-working Spaces Reduce Corporate Real Estate Risk | Co-working ensures maximum utilisation of office resources 

One of the major benefits of shifting to co-working is that a company will not be under pressure to fill the available seating capacity it creates after taking an area on a lease.

The leased office is fixed space which can not shrink or grow based on the requirement of the company whereas co-working space can do that. Similarly,  unoccupied facilities created for a particular number of employees will continue to remain unutilized instead of putting them to optimum utilisation.

In co-working space, you take a seat on lease while in a traditional office set-up you take an area of a particular size on a lease. It’s easy to increase or decrease the number of seats taken on a lease but not possible with the area. Co-working is the best example of optimisation of resources.

In a traditional office set-up, a team of people takes care of office maintenance and other non-business activities. These are fixed expenses of a company irrespective of the increase or decrease in the employee strength.

Co-working Spaces Reduce Corporate Real Estate Risk | Co-working mitigates strategic risk

Corporate works on various marketing strategies and comprehensive business plan to become successful but quite often business environment doesn’t remain static all the time.

Various factors such as a shift in customer demand because of change in government policies, increase in the cost of raw material due to change in regulation, the arrival of new technology, change in international relations between two countries leading to change in internal rules, etc. pose a grave risk to company’s strategy. And often it has to resort to chopping real estate and payroll expenses first to adjust costs to revenue.

This is possible only when a company’s financial exposure is such that it can shrink or expand according to the external business environment. A co-working gives that freedom to the company.

You May Also Like To Read: Co-working: Experimenting with different models

In times of global turmoil, businesses are subject to unpredictable policy decisions. International business and trade are so inter-linked that any change anywhere in the world has a universal impact.

The recent example is the change of government in the US and its impact on Indian I-T industry due to hardening of US government’s stand on issuing H-1B visas.  So, co-working keeps an organisation ready all the time to cut down its expenses when the environment is hostile and expand when market condition improves.

Conclusion  

While the world is making a transition to the 4th industrial revolution, global turmoil and uncertainty will continue to impact businesses in one way or the other. This goes with every transitional phase. Businesses witnessed similar fluidity during earlier industrial revolutions and those who were flexible and made themselves suitable to new environments survived, but those who did n’t make it are now remembered as good old souls by history books.

Its true beyond  doubt that, Co-working Spaces Reduce Corporate Real Estate Risk . Shifting to Co-working space is one of the most robust risk management strategies that businesses can use to make them flexible and agile for facing any business challenge.

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