Wednesday, July 24, 2024

Rising Flexi Office Demand in Tier 2 Cities Due to Affordable Rentals and Increased Occupancy

"Major Co-Working Companies Expand with Compact Flexi Offices in Tier 2 and 3 Cities, Attracting Corporate and SME Clients Seeking Cost-Effective Solutions Post-Pandemic"

“Leading Co-Working Giants Expand to Tier 2 and 3 Cities with Smaller Flexi Offices, Offering Affordable Solutions to Corporate and SME Clients Who Navigated Downsizing Amidst the Pandemic.

These flexible office spaces, accommodating anywhere from 100 to 450 seats, are now available in cities such as Coimbatore, Jaipur, Thiruvananthapuram, Lucknow, Madurai, Gulbarga, Jaisalmer, Nagpur, and even smaller towns in Himachal Pradesh. These locations are particularly appealing due to their abundant talent pool in the IT/ITES and BFSI sectors.”

“Post-pandemic, businesses are adopting a more cautious approach, with corporations reducing their real estate footprint as hybrid work models gain popularity. Companies are reallocating their capital expenditure towards operational expenses. Given that a significant portion of the workforce originates from tier 2 and 3 cities, major enterprises are choosing to establish flexible office spaces in close proximity to their employees,” explained Pratyush Pandey, CEO of Upflex, a leading platform for flexible office space aggregation.

“Generally, flexible office spaces in metropolitan areas offer seating capacities ranging from 2,500 to 40,000 seats within Grade A commercial buildings. Rental rates in these locations vary from Rs 4,000 to Rs 12,000 per seat, depending on the specific area. In contrast, for smaller towns, rental rates can be as affordable as Rs 90 per day or Rs 1,500 per month.”

“Furthermore, the surge in flexible workspaces in these areas is driven by factors such as reverse migration, a heightened focus on talent retention, and cost reduction efforts.

Pandey noted that large corporations can reduce their commercial rent expenses by 12-15% through the adoption of flexible office solutions. He also highlighted the lack of organized players in tier 2 and 3 cities, which presents opportunities for companies like theirs. Currently, Pandey’s company operates in 87 cities.

Amit Ramani, the founder and CEO of Awfis, shared that his company has a significant presence in tier 2 and 3 cities, boasting 15 centers in these locations. He mentioned that one of the challenges faced by businesses in tier 2 cities is the limited availability of suitable office spaces, with many of these areas lacking modern commercial options.”

“In smaller cities, co-working spaces offer businesses the opportunity to access premium office space in Grade A buildings with amenities, all at a fraction of the cost of leasing or owning a dedicated office. As an example, Awfis successfully designed and provided large office spaces for a global Fortune 500 company in Indore (covering 59,153 sq ft), Jaipur (covering 24,784 sq ft), and Nagpur (covering 83,800 sq ft).

Ramani also highlighted that rental rates in these areas are more affordable compared to major cities, and there is a shortage of compliant office spaces in tier 2 cities.

According to industry insiders, Grade A commercial buildings in major metropolitan areas can accommodate flexible office spaces with as many as 40,000 seats, typically with lock-in periods of up to 18 months. In smaller towns, these spaces can range from 100 to 400 seats, providing fully equipped lite-office solutions. Additionally, the relatively lower real estate prices in these areas make it easier for major players to establish a presence.

Manish Aagarwal, Senior Managing Director at JLL India, pointed out that many individuals who started working during the pandemic have never experienced a physical office. In smaller cities, flexi-office setups also serve as social hubs for employees, eliminating the need for travel to other cities for work.”

“For flexi-space operators, the return on rental investment is notably higher, as they provide ready-to-use office setups. Flexi offices offer a multitude of advantages, helping these operators enhance their profit margins. They provide services such as high-speed internet connectivity, IT support, and on-demand conference facilities. Additionally, many operators offer the option to convert rentals into EMIs.

A report by Vestian predicts that the flexible office space market will expand by 52% by 2025, reaching a total of 81 million sq ft due to strong demand from corporate clients. Currently, flexible office space operators manage 53.4 million sq ft of office space and offer over 760,000 seats across more than 1,000 centers.

Vestian also anticipates that the flexible office sector will represent approximately 25% of the total office space absorption by 2025.”


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