Leading co-working providers are capitalizing on cost-effective rentals and higher returns by offering smaller seat flexi offices in tier 2 and 3 cities. These cities, including Coimbatore, Jaipur, Thiruvanthapuram, Lucknow, Madurai, Gulbarga, Jaisalmer, Nagpur, and small towns in Himachal Pradesh, are witnessing a growing demand for flexible office spaces. This trend has emerged as a response to the pandemic, with businesses downsizing and hybrid workplaces becoming the norm.

Reasons for the Surge

1. Cost Efficiency: Post-pandemic, companies are focusing on cost-cutting and transitioning from capital expenditure (capex) to operating expenditure (opex). By opting for flexible office spaces, large corporations can reduce commercial rent by 12-15%.
2. Reverse Migration: The reverse migration of the workforce from metro cities to their hometowns has created a need for quality office spaces in tier 2 and 3 cities.
3. Talent Retention: Proximity to talent pools in smaller cities allows companies to retain skilled employees while reducing overheads.

Market Landscape

1. Rental Differences: In metro locations, flexi office spaces can accommodate 2,500-40,000 seats in Grade A commercial buildings, with rents ranging from Rs 4,000-12,000 per seat. In smaller towns, rents may start as low as Rs 90 per day or Rs 1,500 per month.
2. Challenges in Tier 2 Cities: Limited availability of modern commercial spaces is a challenge in tier 2 cities, making co-working spaces an attractive alternative.
3. Yield on Rental: Flexi office operators enjoy higher yields on rentals as they provide fully fitted office spaces along with services like high-speed internet, IT support, and on-demand conference facilities.

Future Projections

A report by Vestian predicts that flexible office space stock will increase by 52% by 2025, reaching 81 million sq ft. The flexible office sector is expected to constitute approximately 25% of overall office space absorption by 2025, indicating sustained growth in this segment.

Conclusion

The surge in demand for flexible office spaces in tier 2 cities is driven by cost efficiency, reverse migration, and the need for talent retention. This trend is likely to continue, with co-working providers expanding their footprint in these cities and offering businesses a cost-effective and flexible workspace solution.