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Flexible workspace operators are recognizing the potential of Tier 2 cities, with around 26 major flex office operators recording presence across 10 Tier II cities in 2023, showcasing a rapidly expanding demand by start-ups and established firms, according to real estate consulting firm CBRE South Asia.
The overall office absorption across the 10 cities stood at 1.6 million sq. ft. in the Jan–Sep 2023 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 September 2023, 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 million sq. ft. during January–September 2023. The top cities dominating supply addition in CY2023 include Ahmedabad, Kochi, and Indore.
The cities include Chandigarh, Jaipur, Lucknow, Coimbatore, Kochi, Thiruvananthapuram, Vishakhapatnam, Ahmedabad, Indore, and Bhubaneshwar.
As per the report, Ahmedabad has the highest flex stock, with more than 0.5 mn. sq. ft. as of September 2023. 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 million sq. ft.
Prominent flex operators such as Awfis and Incuspaze recorded presence in more than five cities, including Jaipur, Kochi, Lucknow, Thiruvananthapuram, Ahmedabad, Indore, and Bhubaneswar. Other players who forayed into these cities include IWG, IndiQube, and Smartworks, among others.
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.
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, according to the Anshuman Magazine, Chairman and CEO of CBRE, India, Southeast Asia,Asia, and the Middle East and Africa.
“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 centers (GCCS) in select Tier II cities,” he added.
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