Real Estate: Lure Of The Towns
Amidst the burgeoning tide of remote and freelance careers, the clamour for dynamic, invigorating, and meticulously outfitted work environments has surged. This has led to the rise of co-working and flex office spaces, shimmering symbols of versatility, camaraderie, and ingenuity, perfectly tailored for the Gen Z workforce. India, in sync with the global pulse, has seen an upsurge in the ranks of flex space pioneers since the dawn of the decade, spurred by the ever-growing demand for office sanctuaries nationwide and the flourishing legion of independent professionals propelling this transformative wave.
Sample this: some of the world’s biggest corporates are now opting for flexi workspaces - including Google, Samsung, Rolls Royce Energy, Kotak Mahindra Bank, L&T, and others. Further, co-working players have contributed significantly in terms of commercial real estate absorption in the top seven cities. Key co-working brands including WeWork, Awfis, Cowrks and Oyo Innov8 have increasingly started using technology solutions to create experiential workplaces via asset and inventory management, on-demand meeting room booking facility, parking automation, and smart visitors and access controls, as per a recent report from ANAROCK Group.
"The market size of flexible office real estate across the country is expected to aggressively grow, reaching anywhere between 100 million sq. ft to 140 million sq. ft by 2030," says Anuj Puri, Chairman, ANAROCK Group, a leading real estate consultancy and research firm.
The latest report by MyHQ by ANAROCK indicates that among the top five prominent co-working cities, the average monthly rentals per flexi space seat has seen the highest jump (of 27 per cent) in Mumbai in the last four years. The cities considered include Mumbai, Delhi, Gurugram, Noida and Bengaluru. The average monthly rentals per flexi space seat in Mumbai stood at Rs 15,900 in FY24 as against Rs 12,500 per seat in FY20. Gurugram witnessed a 19 per cent growth in the same period – from Rs 8,500/month/seat in FY20 to around Rs 10,100/month/seat in FY24. Delhi’s flex workspace's rental grew 18 per cent - from Rs 10,000/month/seat in FY20 to around Rs 11,800/month/seat in FY24, while Noida saw 14 per cent growth in average monthly rentals of flexi spaces in the last four years – from Rs 6,500/month/seat in FY20 to Rs 7,400/month/seat in FY24.
Boom in Tier-2 & -3 Towns
In today's India, exciting changes aren't just happening in big cities. Positive trends are spreading to smaller towns too, where things are really picking up. These changes are all about making work easier, cheaper, and more comfortable for everyone involved. And it's not just workers who benefit, businesses too are finding new opportunities to connect with talent from all over the country.
Further, India is buzzing with startups in all sorts of fields, and they're driving the demand for flexible and affordable workplaces in a big way. Post-Covid, a new era of work where remote and in-person teamwork blends has taken root. It's a fresh start full of chances to collaborate and succeed in new ways.
CBRE South Asia, India’s leading real estate consulting firm, in its report earlier this year observed a rapid expansion of flex office operators across 10 Tier-2 cities in 2023, denoting a major shift in the trend. These 10 cities included Chandigarh, Jaipur, Lucknow, Coimbatore, Kochi, Thiruvananthapuram, Vishakhapatnam, Ahmedabad, Indore, and Bhubaneshwar.
According to the said report, between January and September 2023, office space measuring around 1.6 million sq. ft was taken up in 10 different Tier-2 cities. Leading this absorption were Ahmedabad, Jaipur, and Thiruvananthapuram. The total office space available in these 10 cities was approximately 68 million sq. ft as of September 2023, with Ahmedabad, Kochi, and Thiruvananthapuram each boasting more than 7.5 million sq. ft of office space.
During the January-September 2023 period, these 10 cities added office space totaling about 3.4 million sq. ft, with Ahmedabad, Kochi, and Indore topping in terms of supply increase.
Tier-2 cities are fast emerging as the next growth frontier for the office sector. With their growing talent pool, competitive real estate costs, and improving infrastructure, these cities are well-positioned to attract more businesses in the future. "The sectoral drivers of office space demand in Tier-2 cities include IT, technology, flexible space operators, ecommerce startups, technology GCCs, consulting and advisory GCCs, and Indian BFSI firms," says Anshuman Magazine, Chairman & CEO, India, (S.E. Asia, ME & Africa), CBRE.
Why Such Growth?
It's easy to see why the growth has percolated to smaller towns. "India Inc. and numerous multinational companies are increasingly setting up offices in Tier-2 cities, capitalising on cost-effective real estate and the availability of talented professionals. This trend is further bolstered by the rise of local startups and the expansion of established startups into these smaller markets," explains Magazine.
Agrees Prateek Jhawar, Managing Director and Head, Infrastructure and Real Assets Investment Banking, Avendus Capital. "MSMEs, unicorns and startups are looking for cost-effective office solutions and are opting for flex workspaces in peripheral business districts of Tier-1 and some Tier-2 cities, owing to their affordable prices," says Jhawar. As per an Avendus Capital report, the flex space market size is expected to touch 126 million sq. ft, addressing a $9 billion market by 2028.
"The flex workspace segment is expected to be the next big thing in the Indian commercial real estate (CRE) sector. We anticipate the segment to scale up at a CAGR of ~15 per cent over the next five years to become ~126 mn sq. ft by 2028, from ~61 mn sq. ft in CY23," says Jhawar. From a value perspective, Jhawar estimates that the flex workspace sector in India would be addressing a $9 billion market by 2028, growing at a CAGR of ~21 per cent from $3.5 billion currently.
According to Jhawar, currently the flex workspace operators are enjoying 30-35 per cent stable IRRs in both co-working and managed offices. "As the industry matures, the returns profile of the industry is expected to gradually stabilise more towards 20-25 per cent IRR levels, which would still be much higher than what some other real asset classes provide," he adds.
According to a recent Colliers-FICCI industry report, by 2024, flex spaces are projected to account for 15-20 per cent of Grade A office demand. The surge in Global Capability Centres (GCC) further amplifies this trend. GCCs are expected to contribute over 40 per cent of total office demand. Notably, the flex stock has doubled to over 45 million sq. ft since 2019, reflecting an evolving preference for adaptable work environments. Hotels and F&B outlets have also started opening co-working wings to maximise revenue from day-time unutilised inventory. These include Roseate, Sheraton, and Socials, among others. This transformation is bound to reshape the work culture in India, as per Puri.
Bright Outlook
As more enterprises are exploring the work-from-anywhere policy, experts are seeing a broad shift towards flexible and modern office solutions. The sector has witnessed new leasing of ~10 mn sq. ft for two consecutive years in 2022 & 2023, driven largely by enterprise demand. For 2024 and 2025, sector experts expect the trend to continue and the sector to grow 10-12 mn sq. ft per annum. With Awfis expected to become the first flex workspace operator to launch an IPO and list on the mainboard NSE and BSE stock exchanges later in the year, experts say other players like WeWork India, Smartworks and Indiqube may also draw up a roadmap for an IPO and start preparing for listing their business over the next 2-3 years.
Overall, the business of flexi office space is growing rapidly across a spectrum of cities giving higher returns to the operators while providing world-class working conditions at par with some of the best in the overseas market.
