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Increased demand for flexible offices in tier 2 cities due to lower leasing costs and more occupancy

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Leading co-working providers are expanding their offerings to include smaller seat flexi offices in tier 2 and 3 cities across India. These smaller flexi offices, typically ranging from 100 to 450 seats, are being established in cities like Coimbatore, Jaipur, Thiruvananthapuram, Lucknow, Madurai, Gulbarga, Jaisalmer, Nagpur, and small towns in Himachal Pradesh. The goal is to cater to corporate and SME clients who have downsized their office spaces during the pandemic.

Cheaper rents and better investment returns in these locations have driven the growth of flexible workspaces. With hybrid workplaces becoming the norm, companies are focusing on operational expenses (opex) rather than capital expenses (capex). Many of these smaller cities are home to a significant pool of talent in sectors like IT/ITES and BFSI, making them attractive locations for flexible office spaces.

In metro areas, flexi-space offices typically have capacities ranging from 2,500 to 40,000 seats, with rents ranging from Rs 4,000 to Rs 12,000 per seat depending on the location. In smaller towns, rents can be as low as Rs 90 per day to Rs 1,500 per month. Factors such as reverse migration, talent retention, and cost-cutting have contributed to the rise of flexible workspaces in these locations.

Flexible office spaces allow large corporates to reduce commercial rent expenses by 12-15%. While there are few organized players in tier 2 and 3 cities, this presents an opportunity for providers like Upflex. Awfis, another flexible office space provider, has a strong presence in tier 2 and 3 cities with 15 centers. These spaces offer access to high-quality office spaces in Grade A buildings at a fraction of the cost of traditional office rentals.

Large players in the flexible office space sector can accommodate as many as 40,000 seats in Grade A commercial buildings in major metros. In smaller towns, the range is typically between 100 and 400 seats, providing lite-office spaces. Real estate prices in these areas are relatively lower, making it easier for large providers to establish a presence.

According to Manish Agarwal, Senior Managing Director at JLL India, Flexi-office setups also serve as socializing points for employees in smaller cities who no longer need to travel to other cities for work.

Flexible office space providers offer fitted offices, high-speed internet, IT support, on-demand conference facilities, and even convert rentals into EMIs, providing higher rental yields and profit margins.

A report by Vestian predicts that flexible office space stock will increase by 52% by 2025 to reach 81 million sq ft due to strong demand from corporates. Flexible office space operators currently have 53.4 million sq ft in operations, with over 760,000 seats available across more than 1,000 centers. The flexible office sector is expected to constitute around 25% of overall office space absorption by 2025.


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