New Delhi: Startups should ideally have offices in suburban locations that command significantly lower rentals in order to cut costs and boost profitability, says property consultant CBRE.
In its new report 'Corporate Real Estate (CRE) strategies for startups in India', it said, "the abundance of a technically skilled workforce and India's demographic and economic dividend has created an immense opportunities for a thriving startup ecosystem".
India had about 4,200-4,400 startups at the end of 2015 and the annual addition of startups is likely to grow by about 17 per cent per annum from 700 ventures in 2013 to an estimated 2,100 ventures by 2020, CBRE said quoting a NASSCOM study.
"As startups seek new ways to enhance profitability and reduce cost in the wake of increasing competition, Corporate Real Estate (CRE) strategies play a larger role in shaping their overall business direction," it said.
The evaluation and execution of the existing and future real estate requirements would be a critical element for overall operational efficiency, it added. "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 per cent in the case of Gurgaon; 300 per cent in the case of Mumbai and 60 per cent in Bangalore," CBRE said.
Drawing comparison between the micro-markets preferred by startups and prominent secondary locations of leading cities, CBRE said there is a rental differential of as low as 13-15 per cent in Mumbai and as high as 35-50 per cent in Gurgaon.
"Thus in our view, startups should continue to focus on operating out of cost effective suburban markets to fuel their expansion-led office leasing requirements," CBRE said. The consultant has evaluated office location choices of more than a 100 startup office occupiers across leading citie in India over the past two years.
Commenting on the report, CBRE South Asia CMD Anshuman Magazine said: "With a l arge 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 optimise costs but also adapt to the change in their growth cycle.
" Stating that Corporate Real Estate management strategies encompass location analysis, workspace strategy and mobile working options, among other practices, Magazine said a constantly evolving CRE strategy is essential for startups to stay relevant in the market. CBRE said that without proper planning and execution, real estate choices could lead to cost leakage, highly essential in the case of a startup company.
With the instability inherent in the operations/survival of startups, CBRE said it is imperative that real estate options are considered keeping cost control in mind to avoid serious ramifications. The flexibility of leasing terms that facilitate easy exit is also an important factor.
