Co-working surge: Reverse migration of employees pushing companies to set up offices in tier-II towns

The demand for co-working spaces is rising in tier-II and beyond regions with offices looking to optimise costs while also ensuring employee retention by allowing them to work from their hometowns. The demand surge is courtesy of start-up firms, IT and service sector companies.

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ervices with greater elasticity of demand, such as those catering to the upper income segment, recorded the sharpest rise in inflation, a Crisil analysis shows.

With trained professionals and employees shifted back to their hometowns over the last two years of the pandemic, companies are now going an extra mile to retain their employees while also starting to work in a hybrid model. Companies in the IT and service sector besides start-ups and unicorns have started looking for co-working office spaces in tier-II and beyond towns. This has given a push to the popularity of co-working spaces in smaller towns even as popular consensus assumes that the demand will only fall with the world gradually emerging out of the Covid pandemic. “There has been a 45 per cent spike in demand for enterprise-managed office spaces in Q1, a lot of which comes from tier-II and -III towns. Given the steadily increasing demand from enterprises, we hope to at least double our workspace portfolio in these cities by the end of 2022. Essentially, we are witnessing demand from large multinationals, fortune 100 companies, including IT companies, professional services, and start-ups/unicorns,” said Sanjay Chatrath, Managing Partner-India, Incuspaze.

The past two years have witnessed a noticeable change across segments and across the ways people and companies are operating. One such change has been the reverse migration of trained professionals from metro cities to tier-II and beyond areas. And companies/ businesses are not minding this. They are now looking to optimise costs and ensure employee retention by allowing employees to work from their hometowns, which has facilitated the expansion plans of co-working spaces for tier-II cities and beyond, said a JLL-Awfis survey. “Businesses of all sizes from different industry segments have moved their base or have expanded in smaller towns seeing the business opportunities, ease of hiring new talent with lower cost and also to offer flexibility to the existing employees. While these companies are entering new locations, they are adopting flexible office spaces as it offers lower cost to run the setup and of course flexibility. We are currently doing 35 per cent of the business in tier-II and -III cities. Companies from services sector, tech, MSMEs, consulting and IT sector and also sales offices of enterprises are looking for spaces in these regions and they mostly average around 50 seats at one location,” said Paras Arora, CEO & Founder, Qdesq.

Smaller Towns becoming the next corporate hubs

Today, companies across sectors are setting up their regional or satellite offices closer to their employee base, instead of going the other way around. “They are approximately looking for space between 100-500 seats to begin with and plan to ramp up as they get more confidence operating from these cities,” said Sanjay Chatrath.

So, which are these untapped markets/ towns that’s turning into the new ‘corporate hubs’ of the country? According to the JLL-Awfis survey, tier-II markets like Ahmedabad, Indore, Jaipur, Kochi, Bhubaneswar, Chandigarh and Lucknow as the places where flex operators have the strongest leverage to tap into growing demand. “Considering the growing opportunities in many of the tier-II and -III cities, few large corporates are seeing it an opportune time to expand their base there, leading to the rise in trend of flexi spaces vying for spaces in tier-II and -III cities over the last one year,” said Anuj Puri, Chairman, ANAROCK Group. Pointing to a host of developments happening in the managed office space, he further said that Smartworks is in process to finalize co-working spaces in tier-II cities such as Jaipur and Coimbatore under their plan to invest Rs 250 crore pan India. Awfis opened workspace in Ahmedabad. The 25,000 sqft space spread across two floors, is in line with the company’s aim to expand into tier-II markets. IndiQube plans to add 5,000-10,000 seats in tier-II cities. IWG has signed a deal with Conjoinix for 18 centres across Delhi-NCR, Haryana, Uttar Pradesh, Jammu & Kashmir, and Gujarat. The company has presence in tier-II cities like Vizag, Coimbatore, Ahmedabad, Lucknow, Chandigarh, Jaipur, etc. and plans to expand further to Panipat and Cochin. Simpliwork will look at tier-II cities with captive demand and is seriously considering Kochi, along with Jaipur and Ahmedabad.

How appealing is a co-working space in smaller towns?

Many companies had, during the pandemic, given up their office spaces and are now looking for smaller offices as they are starting with a hybrid model of working. And when looking for such office spaces, these companies are realising the benefits of getting office spaces in smaller towns as well. “Companies are looking for spaces in these towns to provide much-needed flexibility to their workforce while also maintaining the overall well-being of their employees,” said Ravindra Pai, Managing Director, Century Real Estate.

Besides their employees who have now moved closer to their hometowns, the companies are also finding this option more economical while expanding their reach to potential markets in tier-II towns. “The average in these areas is Rs 6000 + GST and tier-I tariff would average at Rs 11,500 + GST as the maximum centres in tier-I are branded operators. We are seeing a huge demand since the beginning of Q4 of 2021 and the demand has grown 50 per cent month on month,” said Paras Arora.

Nevertheless, opposed to the popular belief that with the pandemic subsiding, the demand for co-working spaces will fall too, the industry is witnessing a clear surge in demand especially from tier-II towns, if not metro cities. “Even though companies are now returning back to their workplaces, flexible working is the future. As per a report by CBRE, the sector is expected to grow at 10-15 per cent Y-O-Y in the next three years. This growth will likely be driven by the expansion in tier-II cities, all over the country,” said Chulamas Jitpatima, Country Director, MQDC India.

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First published on: 30-03-2022 at 14:47 IST