Backed by cheaper rents and better returns on its investments, leading co-working players are offering smaller seat flexi offices in tier 2 and 3 cities to corporate and SME clients who had to downsize during the pandemic.
These flexi offices – ranging from 100 to 450 seats – are coming to cities like Coimbatore, Jaipur, Thiruvanthapuram, Lucknow, Madurai, Gulbarga, Jaisalmer and Nagpur, and even small towns in Himachal Pradesh, where a large pool of talent for IT/ITES and BFSI sectors hail from.
“Businesses are not taking long shots and corporates are cutting down on real estate space post pandemic as hybrid workplaces become a norm. Companies are cutting down on capex and putting it in opex. Since a large chunk of workforce hail from tier 2 and 3 cities, big companies are going near their workforce and are opting for flexi-office spaces,” said Pratyush Pandey, CEO, Upflex, one of the largest aggregator platform of flexible office space.
Typically, flexi-space office in a metro location would have a capacity of 2,500-40,000 seats in a Grade A commercial building with rents ranging from Rs 4,000-12,000 per seat depending on the location. For a smaller town, the rents could range from as low as Rs 90 per day to Rs 1,500 per month.
Additionally, factors such as reverse migration, focus on retaining talent and cost cutting are leading to the surge of flexible workspaces in such locations.
Pandey said big corporates are able to cut down on commercial rent by 12-15% by opting for flexible spaces. “There are no organised players in the tier 2 and 3 cities and it gives players like us an opportunity,” Pandey said, adding that the company operates out of 87 cities.
Amit Ramani, founder-CEO, Awfis, said the company has a strong presence in tier 2/3 cities with 15 centres. He said one of the challenges faced by businesses in tier 2 cities is the lack of availability of suitable office spaces. Many tier 2 cities have limited options for modern commercial spaces.
“In smaller cities, co-working spaces can provide businesses with access to high-quality office space in Grade A buildings with amenities at a fraction of the cost of renting or owning a dedicated office. For instance, Awfis designed and delivered large office spaces for a global Fortune 500 company in Indore (59,153 sq ft), Jaipur (24,784 sq ft) and Nagpur (83,800 sq ft.)
Ramani also said that the rentals in these areas are lower compared to big cities and there is a dearth of supply of compliant spaces in tier 2.
Players FE spoke to said Grade A commercial buildings can house as many as 40,000 seat flexible office space with a typical lock-in period of up to 18 months in big metros.
In smaller towns, it can range anywhere between 100 to 400, which are fully equipped to act as lite-office space. Real estate prices are relatively low thus making the inroads into these cities easier for large players.
Manish Aagarwal, Sr MD, JLL India, notes that, “Many people who joined work during the pandemic have never visited a physical office. A flexi-office set up also acts as a socialising point in smaller cities for employees who need not travel to other cities for work.”
For flexi space operator, the yield on rental is significantly higher as they provide fitted office. Flexi offices offer them all these benefits while helping them grow their profit margin. Services like high-speed internet network, IT support and on-demand conference facilities are offered by these spaces. Many players convert rentals into EMIs too, he noted.
A report by Vestian notes that flexible office space stock is set to rise 52% by 2025 to 81 million sq ft on strong demand from corporates. Flexible office space operators currently have 53.4 million sq ft area under operations. There are over 760,000 seats available with flexible space operators spread across more than 1,000 centres.
Vestian has projected that the flexible office sector would constitute around 25% of the overall office space absorption by 2025.