Tier-II cities emerge as new ground for flex office operators, 26 major operators record presence across 10 cities: CBRE Report

Jan 29, 2024 –  CBRE South Asia Pvt. Ltd, on Monday announced the findings of its report – ‘The office sector’s ascent: Tier-II Cities on the Horizon’.  The report highlights that nearly 26 major flex office operators recorded presence across 10 tier-II cities in 2023. These 10 cities include Chandigarh, Jaipur, Lucknow, Coimbatore, Kochi, Thiruvananthapuram, Vishakhapatnam, Ahmedabad, Indore, and Bhubaneshwar. As per the report, flexible workspace operators are recognising the potential of these markets and are rapidly expanding their presence, providing options for start-ups and established firms. 

The report indicates that Ahmedabad has the highest flex stock, with more than 0.5 mn. sq. ft. as of Sep ’23. Other cities, including Chandigarh, Jaipur, Coimbatore, Kochi and Indore, have flex stock between 0.3-0.5 mn. sq. ft.  Lucknow, Thiruvananthapuram, Visakhapatnam and Bhubaneswar have flex office stock lower than 0.3 mn sq. ft. Prominent flex operators such as Awfis and Incuspaze recorded presence in more than 5 cities, including Jaipur, Kochi, Lucknow, Thiruvananthapuram, Ahmedabad, Indore and Bhubaneswar. Other players who forayed into these cities include IWG, IndiQube and Smartworks, among others.

According to the report, overall office absorption across the 10 cities stood at ~1.6 mn sq. ft. in Jan-Sep’23 period, led by Ahmedabad, Jaipur, and Thiruvananthapuram. The total office stock in these 10 tier-II cities stood at ~68 mn. sq. ft. as of Sep ’23, with Ahmedabad, Kochi and Thiruvananthapuram, each boasting office stock higher than 7.5 mn. sq. ft. The total office supply recorded in these 10 cities was ~3.4 mn. sq. ft. during Jan-Sep ’23. Top cities dominating supply addition in CY2023 include Ahmedabad, Kochi, and Indore.  

Tier-II cities are fast emerging as the next growth frontier for the office sector. With their growing talent pool, competitive real estate costs, and improving infrastructure, these cities are well-positioned to attract more businesses in the future. The sectoral drivers of office space demand in Tier-II cities include IT, Technology, flexible space operators, e-commerce start-ups, technology GCCs, consulting and advisory GCCs, and Indian BFSI firms. 

Traditionally, office spaces in smaller cities have been dominated by Grade B buildings, characterised by smaller floor plates, and limited amenities. However, recognising the growing demand, Tier-II cities have been witnessing the development of modern office parks.

Advertisement

 Anshuman Magazine, Chairman & CEO, India, Southeast Asia, Middle East & Africa, CBRE, said, “India’s tier-I cities have been the main drivers of economic growth in the country being prime employment hubs. At the same time, India’s non-metros, referred to as tier-II and tier-III cities, have primarily been seen as residential or industrial centres, developing as hubs of trade and businesses over decades. The growth of micro, small and medium-sized enterprises (MSMEs) has been a key driver of economic activity in non-metro cities, providing a vital boost to local economies.

India Inc. and numerous multinational companies are increasingly setting up offices in tier-II cities, capitalising on cost-effective real estate and the availability of talented professionals. This trend is further bolstered by the rise of local start-ups and the expansion of established start-ups into these smaller markets.

Looking ahead, information technology (IT) and technology companies are expected to be at the forefront of this shift towards smaller cities. CBRE also expects a surge in the number of companies setting up their global capability centres (GCCS) in select tier-II cities”.

Ram Chandnani​, Managing Director, Advisory & Transactions Services, CBRE India, said, “Over the next few years, tier-II cities would witness a higher number of modern office developments, including flex spaces replete with amenities that are appealing to global and domestic occupiers. Further, prominent developers would bring international standards and a proven track record to enhance the real estate profile of tier-II cities. 

Global and domestic firms are likely to adopt several entry strategies to establish and expand their footprint, including flex spaces and traditional office spaces. Established IT services firms would likely explore campuses for their offices.  Global firms are likely to see the appeal of tier-II cities for their GCCs, aided by cost considerations and the availability of skilled talent. Tier-II cities are gradually emerging as hubs for technology talent, bolstered by higher educational institutions and professional institutes.  As occupiers mark their entry in tier-II cities and the quality of life improves, talent retention in these cities would emerge as a game-changer.  India’s budding start-up ecosystem is likely to enhance experienced talent for specific domains such as artificial intelligence and machine learning.”

Top 5 Office Markets in Tier-II cities

Chandigarh: The joint capital of Punjab and Haryana, city stands as one of India’s few planned cities. As the city’s residential base flourished, the social infrastructure received a boost, adding to the city’s vibrancy. Chandigarh is home to several prestigious colleges, attracting IT companies to set up offices. Prominent office spaces include DLF IT Park, Unity CP 67, SP Infocity, QuarkCity.

Advertisement

• Office space supply and absorption during Jan-Sep’23 stood above 120,000 sf ft respectively, with stock ranging between 6 – 7.5 mn sq.ft.
• Key micro-markets of Chandigarh are located at Central Chandigarh, Mohali – Sectors 66 & 67, Industrial Area Phase I & II.  Mohali – Sector 82 is an emerging micro-market witnessing increased occupier interest due to its strategic location (closer to the airport) and competitive rentals. Mohali – Phase 8A & 8B- an older micro-market with Grade A occupier presence in SEZ assets – SP Infocity & Quark.
• Key office occupiers in the market includes IBM, Teleperformance, Concentrix, TaskUs, Alorica, Bunge
• Key startups present in the market Evage Motors, Ayu Health, LetsShave, Cloud Scale Inc

Coimbatore: (also known as Kovai) is the second largest city in Tamil Nadu after Chennai. While Coimbatore is a key industrial hub, the city is also emerging as a destination for IT and technology companies. The city’s diverse talent pool, led by the presence of numerous colleges, and the city’s proximity to Bangalore and Kochi, have added its attractiveness as an office hub. Prominent office spaces include Hanudev Infopark, KCT Tech Park, KGISL Tech Park, Tidel Park, SVB Tech Park, Rathinam Tech Zone, TICEL.

• Office space absorption during Jan-Sep’23 stood higher than 120,000 sq. ft, while supply stood in a range of 50,000-80,000 sq.ft. and stock stood at 6 – 7.5 mn sq. ft. 
• Key micro-markets of Coimbatore are located at RS Puram, Gandhipuram, Avinashi Road till Lakshmi Mills, Trichy Road, Saravanampatti. Pollachi Road, the micro-market is located near Eachanari, a location dominated by MSMEs; a project by L&T is expected to be operational by 2026. Avinashi Road, TIDEL4.4 Park and Airport is upcoming commercial micro-market with large IT occupiers preferring the TIDEL Park office development
• Key office occupiers in the market includes CTS, Bosch, Amazon, Schlumberger, Infosys, HCL 
• Key startups present in the market- Ticket 9, Kovai.co, BNC Motors

Kochi: a port city, is the second-largest urban conglomerate in Kerala. Kochi’s economy is driven by shipbuilding, chemicals, and tourism. As the commercial capital of Kerala, the city’s office ecosystem is well-developed, dotted with the presence of several technology parks. Over the last few years, the city has seen the proliferation of GCCs as well as home-grown start-ups across sectors such as technology and fintech, amongst others. Prominent office spaces include Brigade World Trade Centre (WTC), Lulu Cyber Tower, Prestige TMS Square, Prestige Cyber Green.

• Office space absorption and supply during Jan-Sep’23 stood higher than 120,000 sq. ft. respectively. Stock is noted as higher than 7.5 mn sq. ft.
• Key micro-markets of Kochi are located at MG Road, Kaloor, Kadavanthra, Panampilli Nagar, Thevara,  Vyttila, Palarivattom, Edappally. Kakkanad, Seaport-Airport Road, a well-established office destination, the micro-market hosts several technology firms
• Key office occupiers in the market includes Wipro, CTS, TCS, Sutherland, EY
• Key startups present in the market- Entri.app, Growcoms, EduBrisk

Thiruvananthapuram: The capital city of Kerala is well-known for its educational institutions, mineral-based industries, tourism. A premier IT hub, the city is aided by the presence of R&D institutes, technology parks, and an experienced talent pool. Prominent office spaces include Technocity, Technopark, Embassy Taurus Techzone, Accel Infinium.

• Office space absorption and supply during Jan-Sep’23 stood above 120,000 sq. ft. respectively. Stock for the city is noted to be higher than 7.5 mn sq. ft.
• Key micro-markets of Thiruvananthapuram are located at Kazhakoottam, Chacka, Pallippuram. MG Road, Pattom,Palayam, Thampanoor- The micro-market comprises small offices suitable for client facing firms such as banks.
• Key office occupiers in the market includes UST, TCS, Allianz, Infosys, SunTec
• Key startups present in the market- Genrobotics, Twylabs, Inzpira 

Ahmedabad: is a prominent manufacturing and trading hub in western India. Over the last decade, the city has attracted global and Indian firms, led by its investor-friendly government. The city has a high presence of good quality office spaces and is known for its infrastructure development. Prominent office spaces include GIFT City, Mindspace Gandhinagar, Hiranandani Signature.

• Office space absorption and supply during Jan-Sep’23 stood above 120,000 sq. ft respectively.  Stock was noted to be higher than 7.5 mn sq. ft. 
• Key micro-markets of Ahmedabad are located in Ashram Road, Chimanlal, Girdharlal Road, SG Highway, Prahlad Nagar, Corporate Road, Iscon Ambli. GIFT City, Mindspace SEZ, Sargasan,Science City an emerging office micro-market; houses various global technology and BFSI occupiers.
• Key office occupiers in the market includes Adani group & Vodafone 
• Key startups present in the market- Medkart Pharmacy, Petpooja, Renée Cosmetics, MatterEnergy