Start-ups 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 start-ups 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 start-up ecosystem".
India had about 4,200-4,400 start-ups at the end of 2015 and the annual addition of start-ups is likely to grow by about 17% per annum from 700 ventures in 2013 to an estimated 2,100 ventures by 2020, CBRE said quoting a NASSCOM study.
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"As start-ups seek new ways to enhance profitability and reduce cost in the wake of increasing competition, 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 start-ups 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% in the case of Gurugram; 300% in the case of Mumbai and 60% in Bangalore," CBRE said.
Drawing comparison between the micro-markets preferred by start-ups and prominent secondary locations of leading cities, CBRE said there is a rental differential of as low as 13-15% in Mumbai and as high as 35-50% in Gurugram.
"Thus in our view, start-ups 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 start-up office occupiers across leading cities in India over the past two years.
Commenting on the report, CBRE South Asia CMD Anshuman Magazine said: "With a large number of start-up 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 start-ups 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 start-up company.
With the instability inherent in the operations/survival of start-ups, 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.