As covid-19 has forced companies and employees to shift to remote working and with a sharp fall in revenues, firms are preferring to take up flexible co-working spaces rather than renting large offices to cut costs.
“As occupiers strive to be agile in these unprecedented times, they prefer to adopt a capex-light model and look at pre-fitted spaces and managed offices offered by flex space operators,” said Naveen Nandwani, managing director, commercial advisory and transactions, Savills India.
Nandwani added that this would provide the flexibility of not committing to long-term contracts. “A hybrid model or a concept of ‘work from anywhere’ is also emerging where employees can either work from home or in office or even in flexible office spaces,” he said.
This could cause major issues for commercial real estate developers who have bet hundreds of crores of rupees in developing large office complexes.
According to a report by real estate data provider CRE Matrix released in May, around 391 million sq. ft of commercial space and ₹37,072 crore worth of leases are at stake in the next 12 months. Of this, around ₹17,603 crore (186 million sq. ft) of leases have either lapsed or are set to expire in 12 months.
If a company takes a typical lease for a 1,000 sq. ft, it is locked in for three to five years. So companies work out a three- to five-year hiring plan before buying or renting a space and getting locked in.
With real estate rentals forming a significant part of fixed costs for companies that do not own their office spaces, renting smaller spaces is preferred.
Technology and financial services firms occupy the bulk of top-grade commercial real estate assets in the country, though many are cutting down on their real estate flab in favour of remote working. They believe a hybrid of both home and office will best meet employee needs.
These companies not only have long-term leases but have also invested heavily in office spaces over the years with server, cloud and IT hardware infrastructure.
This article was first published on livemint.com.