US-based office space provider WeWork Global has bought 20 per cent stake in WeWork India, a fully-owned subsidiary of Bengaluru-based estate developer Embassy Group, for $100 million as the company looks to scale up India operations over the next 36 months.
Embassy Group had 100% rights over WeWork India, which is an independent entity with the right to execute WeWork’s business in the country. WeWork entered into a partnership with Embassy Group in 2017 and started operations in the Indian market.
“India is one of the key markets for WeWork.The fresh round of capital from our long-term partners at WeWork global represents a vote of confidence in our strategy and in India operation. Sandeep Mathrani, global CEO of WeWork will also have a board seat in the India operation,” said Karan Virwani, CEO of WeWork India.
The transaction valued the WeWork India business at around $500 mn. WeWork India had earlier told ET that it plans to raise $200 million (about Rs 1,421 crore) to expand its India operations. “The company plans to use the money for growth capital apart from paying vendors and capital expenditure,” said Virwani.
WeWork India, which had earlier planned to increase the number of desks to 90,000 by the end of 2020, said the focus is now on profitability rather than growing the number of seats.
“We were profitable till March but the COVID-19 outbreak has hit profits. In the last six month, the revenue growth was at 25%, which is lower than the last three years average. We are expecting to close the year with 35,000 members mainly led by large enterprises that form 60% of our portfolio,” said Virwani.
World over the Covid-19 pandemic has accelerated the shift to flexible workspaces, with businesses of all sizes looking to manage cash-flows effectively by moving costs to a variable model.
In recent months, the company has signed 12,000 desks with large enterprise clients like Netflix India, Commonwealth Bank of Australia and John Deere.
“We will grow with our clients and plan to focus more on opportunistic expansion through asset light model. Companies are looking for Covid-19 safe environment and demand for flexible managed space will pick up once the market opens up,” said Virwani.
The firm has also entered into a revenue share model with Embassy Office Parks REIT, the first publicly-listed Real Estate Investment Trust in India, for a 2.5 lakh sft office property in Manyata Tech Park, Bengaluru.
WeWork is currently present in 34 locations across six markets in the country, including Bengaluru, Gurgaon and Mumbai. The co-working and managed office market has disrupted the traditional work environment and has seen a massive growth in the last few years.
However, the flexible office segment growth is expected to remain muted in 2020 and is expected to see some recovery only in the second half of 2021. Flexible workspace leasing in H1 2020 was 16% of gross office leasing totalling to 2.7 million sq ft as compared to 19% or 5 million sq ft 0f total office leasing during the same period in 2019, said Colliers international.