The concept of flexible office spaces or co-working spaces is on the rise in urban India with the expansion of large corporate houses into uncharted business territories and entry of smaller players into start-up industries. The demand for flexible office spaces, also variously known as community work environments, on-demand workplaces or peer spaces, has been on a steady rise over the past few years in Tier I cities of India even though the country was slow to catch up on the concept as compared to top cities of the world like New York or London.
In the first quarter of the year 2019, according to a particular study, witnessed a four-fold increase in the leasing out of co-working spaces in top seven cities of India as compared to the corresponding period in the previous calendar year. The massive potential held in the co-working work spaces has resulted in greater influx of established players in the real estate market enter this domain within the commercial real estate sector.
Flexible office spaces promise to be game changers in the real estate market for the following reasons:
With prices of commercial real estate properties ever on the rise, owning traditional office spaces comes as a huge capital investment even for big corporate houses of the country. As a result, corporate houses are looking to shift their employees to flexible office spaces with on-demand facilities in order to cut down long-term capital investments. On the other hand, flexible office spaces also offer big corporates the flexibility to operate out of geographically separated different spaces that are economically viable.
Small and medium enterprises, as also start-ups and freelancers, find it commercially viable to operate out of co-working office environments due to flexibility. They are also spared the load of investing a substantial chunk of capital into fixed assets during the early stages of the enterprises. This capital can, on the other hand, be used for operational purposes during the initial years.
Prime central areas are the preferred destinations for flexible office spaces owing to their proximity to various facilities and ease of commuting to different suburbs geographically located on the peripheries of the city. Price of commercial real estate within the centre areas are set to witness a several-fold increase due to demand for co-working office environments.
Large corporate houses preferring to have their presence in several Tier II and Tier III cities of the country has given a boost to flexible office spaces. It is unviable to own commercial real estate properties in Tier II and Tier III cities. Corporates prefer to share office space, with necessary modifications and alterations, in co-working environments in these cities.
The flexible office space sector was dominated by unbranded local players earlier this decade. However, over the past few years, occupancy levels for branded operators in particular have been nearly 100 per cent. Non-branded operators have consequently taken a hit with their occupancy levels remaining limited range to the range of around 80 per cent. This encouraging aspect promises to attract more branded players to the flexible office space market in the next few years.
Flexible office spaces provide better returns on capital investments due to the fact that they fall under the category of commercial real estate. Price escalation of properties is more as compared to residential or housing properties. The rentals of flexible office spaces are high as compared to housing properties as well. Rentals of co-working spaces are revised upwards annually as compared to housing properties where rents are reviewed only every three years.
The author is the MD at Avanta India