Giving a tough competition to conventional office spaces, co-working facilities are expected to replace over 25 per cent of office leases that are coming up for renewal this year. More than 50 million sq ft of office space leases are set to expire across India in 2019, with annual rental at around Rs 3000 crore, according to commercial real estate analytics firm Propstack.
"Considering that demand for co-working space is expected to reach 8 to 20 m sq ft by 2020, we believe that about a fourth of these lease expiries will translate into demand for co-working spaces. Increasingly, companies are finding value in co-working spaces as operators offer flexibility in terms of fit-out customisation besides great tenant experience," Raja Seetharaman, co-founder at Propstack, told Business Today.
"This could lead to an interesting trend of office space optimisation by some companies and lead to downward pressure on rentals in some micro markets," he noted.
The leases are for office space ranging from as low as 500 sq ft to 2,00,000 sq ft. And 68 per cent of the lease renewals are in the range of 5000-20000 sq ft. Bangalore, Mumbai and NCR dominate the quantum of lease renewals with 15.27 million, 11.62 million and 9.38 million respectively.
Co-working spaces cut costs by 25 per cent up to 100 seats and are 20 per cent cheaper for up to 250 seats. The seats can be increased on a need basis. In contrast, companies have to lock-in additional space for future growth with conventional office leases, which adds to the cost.
Seetharaman said while space take up has been robust from IT-ITES and BFSI sectors in the recent years, the same sectors will dominate lease renewals in 2019. Almost 73 per cent of the lease renewals will involve companies from the IT-ITES & BFSI industries.
Propstack pointed out that it expects brokers to take home over Rs 500 crores from these lease renewals. Considering that around 35 per cent of renewals will be direct between the existing tenant and the landlord and at an average of 15-30 day brokerage; expected broker earnings could vary depending on the deal structure.