Emerging models: Small firms giving up office space to save rent

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Published: April 27, 2020 5:30:39 AM

Given the Indian economy could well contract in 2020-21,following the disruption to the pandemic, even bigger companies might enourage some employees to work from home. For small businesses there might be no other option.

“Rents account for about 8% of revenues and we can use the money elsewhere,” Kapoor added. (Representative image)“Rents account for about 8% of revenues and we can use the money elsewhere,” Kapoor added. (Representative image)

With revenues drying and receivables piling up, several small firms are fast switching to a work-from-home model to save on rent. The managements at these firms reckon that teams of anywhere between 10 and 100 people should be able to function effectively enough even if they don’t meet everyday.

Pranshu Sikka, founder and CEO at marketing consultancy The Pivotals, has already told his landlords in Noida the firm is moving out and says he will soon take a call on co-working spaces in Mumbai and Bengaluru. “We need to conserve cash and saving on rent is one way to do this,” Sikka said, pointing out he’s not sure if the firm will be able to recover the dues which are now close to a third of the annual revenues.

Kewal Kapoor, director, Chai Kreative, an advertising and consulting company, said the firm may altogether give up a physical office and slowly transition to using video-conferencing and other telecommunication facilities. Kapoor pointed out that with receivables having risen to about Rs 3 crore and revenues having halved, it would make sense to give up the offices in New Delhi and Mumbai. “Rents account for about 8% of revenues and we can use the money elsewhere,” Kapoor added.

Indeed, as hundreds of smaller businesses vacate offices and co-working spaces, those in the business of leasing out office space could be in a spot. Rishabh Jain, CEO, Kalpataru Industries, told FE his company is not able to find tenants for some of its properties that it leases out. The firm has announced a 50% pay cut for all employees and may be “forced” to let go of some if the situation worsens, Jain said.

As firms move to vacate offices, some landlords have been willing to lower rents. Dushyant Sinha, founder of PR firm ICCPL Group said he had managed to negotiate a 50% rent reduction in the rent. Moreover, the rents for the branch offices which are housed in co-working spaces in Mumbai and Chandigarh too have been halved,” Sinha said.

However if the lockdown is extended, the company may give up the co-working spaces. Given the Indian economy could well contract in 2020-21,following the disruption to the pandemic, even bigger companies might enourage some employees to work from home. For small businesses there might be no other option.

Raman Singh, co-founder and CRO at CloudConnect Communications said the firm is readying to work from home through 2020 and will give up the branch offices if the situation does not get better soon. “Nearly 10%-20% of our clients have deferred their payments,” Singh said. Ishaan Khosla, co-founder at Gurgaon-based start-up incubator Huddle said letting go of office will reduce the company’s operating costs and allow it more room to negotiate with both clients and employees. “On the whole, working from home will have a net positive impact on the firm’s bottom line,” said Khosla.

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