Unlikely survivor of Covid-19
Last year’s WeWork saga was in many ways a watershed for the world of finance and startups. The co-working company offered a cautionary tale in what happens when founders forgo fundamentals for the sake of hype and cash and how that eventually catches up to them. As the downfall of the industry’s poster boy that had presence in over 100 cities, there were naturally doubts about the business’s unit economics.
But away from that glamour and big money, a quiet change was taking place in Pakistan as more and more co-working spaces were surfacing and becoming an increasingly popular option for organisations, especially tech companies. New players were entering into the market while the existing ones were adding capacity and, in the process, becoming prominent as an integral part of the country’s startup ecosystem.
According to listings on Coworker.com, an international marketplace for co-working spaces, there are a total of 133 such facilities, including multiple facilities by the same operator, in Pakistan. The biggest chunk of these is in Lahore (60), followed by Karachi (37) and Islamabad (30).
A report by Kickstart from earlier this year says that the total number of co-working spaces in Lahore grew from just six in 2016 to 51 as of February 2020. This was accompanied by a jump in desk supply whose number rose to 3,405 from 475 during the period under review.
Occupancy rates have now returned to the pre-pandemic levels in co-working facilities in the three major cities
However, that was until the coronavirus disrupted the self-proclaimed disruptors themselves. Once the outbreak spread, organisations were forced to go remote, particularly the tech sector, which was the primary driver of demand for co-working spaces. And with that, what was a rapidly growing industry had an existential crisis all of a sudden, marred by complete uncertainty over future prospects.
“When the lockdown was announced in late March, occupancy dropped suddenly from around 90-95 per cent to 25-30pc as companies started cutting down on employees and spaces,” says Saad Riaz, founder of Kickstart, a co-working company managing three facilities at the moment.
The founder of The Hive — which has facilities in all three major cities — echoes the same comments. “Our tenancy levels plunged to about 60pc from over 90pc pre-pandemic and, at the time, we had no clue what lied ahead,” says Owais Zaidi, who himself was infected in the first week of March.
To survive this shock, both renegotiated their own contracts with vendors. “We talked to our landlords to share some of the burden, deferring payments for a few months and discounts on select properties that were completely shut due to lockdowns,” says Mr Riaz.
However, like the rest of the country somehow escaped the worst of the coronavirus (let’s hope it stays that way), the co-working startups started seeing some recovery in three to four months. “By June, we noticed an uptick in short-term demand, mostly for companies scaling down their bigger offices and looking for temporary space in the meanwhile,” explains Mr Riaz. This helped bring occupancy levels in July to above 60pc which, the founder claims, have since returned to normal.
Mr Zaidi, too, saw improvement around the same time, with tenancy levels having now regained 15 percentage points from their pandemic-level lows.
What explains this relatively quick bounce-back in an industry that was perceivably positioned to be hit the worst by Covid-19? Part of the answer lies in the country’s socioeconomic realities. The founders cite problems like small houses, connectivity issues and electricity problems as key factors as to why remote is not always a feasible option in Pakistan.
That in turn fuels demand for co-working spaces, which allow greater flexibility than the traditional model (of maintaining offices) and more stability than pure remote by offering a backup facility where employees can just sit and sprint through their tasks if they can’t focus at home.
“Even otherwise, our corporate culture is such that executives and managers prefer employees to be on the premises to keep an eye on them. So the fully remote option will continue to face hurdles here,” adds Mr Riaz, who believes the pandemic has been a net positive for the Pakistani co-working industry.
In fact, both Kickstart and The Hive are soon adding another facility each to their portfolios (planned pre-pandemic), which will take the former’s capacity to 650+ seats and the latter’s area under management close to 250,000 square-feet.
Mr Riaz estimates the overall market size for co-working spaces hovers between $900 million and $1 billion, with the serviceable addressable market being roughly $525m. And these are just the figures from Karachi, Lahore and Islamabad. As the startup ecosystems of other cities begin to pick pace, they too will see a growing trend in this industry.
The writer (Mutaher Khan) works for a financial data portal
Published in Dawn, The Business and Finance Weekly, October 26th, 2020