By Sumit Lakhani
In recent years, the business and entrepreneurial landscape of India has undergone a transformation with Tier 2 cities becoming nests of innovation and growth. This transformation is supported by the growing demand for flexible office spaces, fuelled by improved connectivity and the birth of the hub and spoke model in the post-pandemic world, amongst other reasons.
The flexible workspaces segment can be considered as one of the fastest growing alternative real estate classes adding value to the entire commercial office ecosystem. The total projected market size for the Indian flexible workspace segment is projected to be approximately 105 million sq. ft. by 2026, including the supply addition within Tier 2 cities in India. Tier 2 cities in India are set to be the next growth frontier for flexible workspaces with demand for commercial real estate in these cities expected to increase significantly in the next 3 – 4 years. The emergence of coworking spaces in Tier 2 cities can no longer be overlooked.
Let’s look at some of the factors that are driving the growth of shared workspaces in Tier 2 cities.
Improved infrastructure and connectivity
A critical driver of the expansion of coworking spaces in emerging cities is the remarkable development of infrastructure and connectivity. The governmental focus on the creation of these cities as business centers has resulted in large funding of infrastructure projects. Roads, airports and railways have been modernized to facilitate the setting up of businesses in these cities. Moreover, the growth of internet services and the spread of high-speed connectivity are enabling large corporates, MNCs and startups alike to contribute to the growth of flexible spaces.
Cost advantages of operating in Tier 2 cities
The cost advantage of operating in Tier 2 cities propels the development of flexible workspaces in these regions as enterprises tap into talent, office spaces, and utilities at affordable rates compared to metros. This allows companies to secure affordable office space and move the funds to essential functions such as marketing, research and development, and recruitment. As a result, businesses can achieve higher profitability and sustainable growth by utilizing flexible workplace arrangements that optimize operational costs, facilitate collaboration and innovation, and tap into local talent pools.
The impact of start-up expansion on job creation and regional economic development
The expansion of start-ups beyond Tier 1 cities is fostering job creation and regional economic development in Tier 2 cities. Once start-ups set up their businesses in these cities, they create job opportunities for the locals. The influx of such jobs not only raises the living standards but also stimulates the economy of the region. Consequently, startups significantly drive demand for flexi offices, not just in metros but in other cities too. Approximately 50% of recognized Indian startups are in Tier 2 and 3 cities.
The hub and spoke model and its adoption in Tier 2 cities
The adoption of the hub and spoke model has been instrumental in the growth of coworking spaces in Tier 2 cities. According to this model, businesses have their main office in a Tier 1 city with branches in Tier 2 cities. This enables businesses to access the benefits of both types of cities. The hub provides access to the larger talent pool, while the spokes have cost benefits and local market insights. Coworking spaces act as the ideal solution for establishing and managing these satellite offices, providing businesses with flexible and scalable solutions. According to the Awfis WorkspaceNext report, 47% respondents acknowledged their plans to expand operations in Tier 2 cities, especially the IT/ITeS, New Tech and BPM sectors.
Tier 2 cities spearheading the technological innovation
The ongoing tech revolution in India’s Tier 2 and 3 cities is fuelling economic growth and driving global-scale socioeconomic transformation. As more Tier 2 entrepreneurs launch innovative ventures, the country is experiencing a major boom. According to a report by Deloitte India and Nasscom, emerging Tier 2 and Tier 3 cities in the country house up to 15% of the Indian tech talent pool.
As improved infrastructure and connectivity continue to transform Tier 2 cities, the future of flexi offices looks extremely promising. The expansion of coworking spaces in these cities is not just a temporary phenomenon but a reflection of the shifting business landscape of this country. The combination of lower costs, improved infrastructure, and the expansion of start-ups is driving job creation, regional economic development, and entrepreneurial growth. The flexi office boom in Tier 2 cities is here to stay, and businesses can reap benefits from this transformative development.
(The author is Sumit Lakhani, Deputy CEO, Awfis, and the views expressed in this article are his own)
