Indian startups may lease 29 mn sq ft office space during 2022-24

By Asmita Dey

Indian startups are expected to lease about 29 million square feet of office space between 2022-2024. This compares with about 22.4 million square feet of space that startups had leased during 2019-2021 and just about 1.4 million square feet of space back in 2010-12, according to a recent report jointly published by Colliers and CRE Matrix. The sharp growth in startups’ real estate coverage comes on the back of increased investor funding into new age companies amid wide adoption of digital by consumers. Investments into local startups surged by nearly three times on a year-on-year basis to almost $30 billion in 2021. The sector birthed over 40 unicorns last year; the tally so far this year already stands at about 10, underscoring the growth momentum.

In percentage terms, startups currently account for a significant 10% of the total occupied office stock in the country and this number is estimated to go up to about 13% by 2024. The estimates are based on the bulk of fresh capital raised by firms being deployed to hire equipped talent and expand the employee base. In an industry defined by cut throat competition, having a bouquet of differentiating products and services built by skilled staff is the only way for startups to stand out. Accommodating more employees will mean booking broader office spaces.

Sure, global companies and Indian conglomerates still remain the largest occupiers of commercial office space but if one categorises the corporate segments in terms of the pace of growth in fresh leasing, startups lead the pack. The sector has shown the highest growth rate of as much as 38% (CAGR) in the last 12 years in total occupied space.

Much of the demand will be driven by fintech and logistics startups, project analysts. “They have gained momentum post pandemic due to increased digital adoption, e-commerce boom and hold a healthy pipeline in potential unicorns list,” they say.

PhonePe is planning to considerably expand its office spaces across cities as it will more than double its employee base to around 5,500 from the current 2,600 by the end of the year, a company spokesperson tells Fortune India. The fintech player has traditional offices across Bengaluru, Pune, Delhi, Mumbai and has also added some co-working spaces into the mix. In all, PhonePe’s real estate coverage spans some 3 lakh square feet at present.

Faircent has recently shifted to a bigger 12,000 square feet office in Gurgaon which has the capacity to seat nearly 180 people. The fintech startup has also leased new office spaces in Pune, Mumbai and Bengaluru. Logistics startup Xpressbees, which recently turned unicorn with a $300 million funding at a valuation of $1.2 billion, said that it may add more co-working seats in Bengaluru in the next three months.

In only the top six cities of Delhi-NCR, MMR (Mumbai Metropolitan Region), Bengaluru, Pune, Hyderabad and Chennai, startups occupied about 49.7 million square feet of office space as of 2021. This figure is expected to shoot up to as much as 78.3 million square feet by 2024.

“As startups pick up pace, landlords need to consider the business life cycle and work preferences of the startups to drive more value,” says Ramesh Nair, CEO, India and managing director, market development, Asia at Colliers.

Besides, this trend also bodes well for flex space providers considering that flexible lease terms, minimal lock-ins and security deposits are some of the parameters that startups weigh before leasing spaces. Young startups aged one to three especially explore no-frills flex spaces and grade B traditional office spaces.

Delhi-NCR is among the fastest growing markets in terms of leasing by startups, having witnessed a three fold rise in leasing in 2021 on a y-o-y basis. Mumbai has, however, lagged due to relatively steep rentals and high cost of living.

“Over the next few years, unicorns will require larger spaces as they raise capital, increase their workforce and expand their services. We can expect unicorns to take up more spaces in tier one as well as tier two cities, opening up newer opportunities in commercial office leasing,” say analysts.