New Delhi, April 12, 2016: According to CBRE’s latest India View Point report on CRE Strategies for Startups in India, India is one of the largest bases for startups. This is due to its strong macro-economic and demographic fundamentals—a large young population base, thriving IT/ITeS and e-commerce sectors. It is also due to increased instances of funding, along with a cultural shift in the mindset of an average Indian entrepreneur displaying increasing willingness to commence individual operations.
For the purposes of this View Point, CBRE evaluated office location choices of more than a 100 startup office occupiers across leading cities in India over the past two years. Below are the key highlights:
- India’s rising information technology (and allied services) sector, supported by the rising smart phone usage, has been the backbone of most startups in the country. The country’s burgeoning IT sector has resulted in a spate of IT/ITeS startups providing specialized, niche services such as cloud computing, financial technology, software design and IT consulting, among others, particularly prevalent in Bangalore. The success of e-commerce in the country has also contributed to the growth of startups providing services such as online shopping, online payment, transport and other support services.
- CRE strategies can play an important role in identifying the overall business strategy of startup businesses, as they have a significant implication on operational cost. Office location options should be chosen on the basis of the needs of a startup company and its current ‘growth stage’. Cost, location and flexibility are the key factors driving the office space choices of startups, followed by the support services offered, and proximity to social infrastructure.
- Cost control on real estate portfolio. Due to the uncertain nature of the operations/survival of startups, it is imperative that real estate options are considered keeping cost control in mind to avoid serious ramifications.
- Choice of location. While the right choice of office format is imperative, location of office space is also a strategic decision. Our analysis reveals that there is a concentration of organized startup office take-up in the top cities of Bangalore, Gurgaon and Mumbai. The report also identifies specific locations in these cities that provide a conducive environment for startups. Preferred locations include HSR Layout, Indira Nagar and Koramangala in Bangalore; Sohna Road, Udyog Vihar, and Sectors 32 and 44 in Gurgaon; and Powai in Mumbai.
- Office space selected by startups should ideally be in suburban locations resulting in maximum cost control. The rental differential between core and suburban office locations is significant across various cities (100% in the case of Gurgaon; 300% in the case of Mumbai and 60% in Bangalore). Even if a broad comparison is drawn between the micro-markets preferred by startups and prominent secondary locations of leading cities, a rental differential of as low as 13-15% in case of Mumbai and as high as 35-50% in case of Gurgaon will be observed. It is thus recommended that startups continue to focus on operating out of cost effective suburban markets to fuel their expansion-led office leasing requirements.
- Flexible leasing terms. We feel that startups and landlords should engage in lease terms that can ease exit, lower cost and sustain them during their growth phases. It is recommended that both landlords and startups should remain open to incorporating ‘customized solutions’ such as allowing for limited fit-out costs or the absence of a lock-in period to lower costs.
According to the National Association of Software and Services Companies (NASSCOM), by the end of 2015, the tier I cities of Bangalore, Delhi National Capital Region (NCR) and Mumbai were the top startup destinations accounting for nearly 65% of total Indian startup firms, followed by cities such as Hyderabad, Chennai, Pune, Jaipur and Ahmedabad.
Anshuman Magazine, Chairman and Managing Director of CBRE South Asia Pvt. Ltd., commented:
“With a large number of startup firms setting up their business in India, it is crucial for them to choose an ‘office format’ that helps them to not just optimize costs but also adapt to the change in their growth cycle. Today, Corporate Real Estate (CRE) management strategies encompass location analysis, workspace strategy and mobile working options, among other practices. For startups, a constantly evolving CRE strategy is essential for staying relevant in the market.”
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.