According to statistics, India ranks third in the number of startups in the world. It is becoming popular by the day, with startups mushrooming everywhere and investors putting their funds in this region. The startup culture in India has spread to a lot of cities and is not just restricted to the metros anymore. But despite this increasing popularity, we still see the same 3-4 names when it comes for startups to set up their bases. Startups are still sticking to the conventional cities to buckle down and set up their offices.
The name that comes on top here is Bangalore. Bangalore is like the Silicon Valley of India, with its incessantly increasing number of startups. Bangalore is like the nectar to the bees that are startups. Even within Bangalore there are certain regions that are more popular than the rest. HSR Layout, Indira Nagar and Koramangala in Bangalore are the top three places where you can find startups. Bangalore is not just a popular name in India, it has been ranked 15th in the Global Startup Ecosystem Rankings.
The other two names that pop up from the crowd are Mumbai and NCR. Being more specific, the startup flooded regions are Powai in Mumbai and Sohna Road, Udyog Vihar, and Sectors 32 and 44 in Gurgaon. Other cities that trail behind are Ahmadabad, Pune, Hyderabad and Chennai. When looking to set up offices, startups should focus on main things like cost, location, flexibility and feasibility more than anything else. And other factors should take a back seat and should be brought into the picture only after the above four are met. India is becoming the place to have a startup and is becmoing popular by the minute.
At present in Bangalore, corporate occupiers and startup firms remain focused on the Outer Ring Road (ORR) stretch between Marathalli and Sarjapur Road; going forward, an incremental shift towards newer locations such as North Bangalore is expected. This is mainly owing to factors such as attractive lease rents, improving social / physical infrastructure and residential developments in the vicinity of the office clusters.
For the purposes of this View Point, CBRE evaluated office location choices of more than a 100 startup office occupiers across leading cities in India over the past two years. Below are the key highlights:
- India’s rising information technology (and allied services) sector, supported by the rising smart phone usage, has been the backbone of most startups in the country. The country’s burgeoning IT sector has resulted in a spate of IT/ITeS startups providing specialized, niche services such as cloud computing, financial technology, software design and IT consulting, among others, particularly prevalent in Bangalore. The success of e-commerce in the country has also contributed to the growth of startups providing services such as online shopping, online payment, transport and other support services.
- CRE (Corporate Real Estate) strategies can play an important role in identifying the overall business strategy of startup businesses, as they have a significant implication on operational cost. Office location options should be chosen on the basis of the needs of a startup company and its current ‘growth stage’. Cost, location and flexibility are the key factors driving the office space choices of startups, followed by the support services offered, and proximity to social infrastructure.
- Cost control on real estate portfolio. Due to the uncertain nature of the operations/survival of startups, it is imperative that real estate options are considered keeping cost control in mind to avoid serious ramifications.
- Choice of location. While the right choice of office format is imperative, location of office space is also a strategic decision. Our analysis reveals that there is a concentration of organized startup office take-up in the top cities of Bangalore, Gurgaon and Mumbai. The report also identifies specific locations in these cities that provide a conducive environment for startups. Preferred locations include HSR Layout, Indira Nagar and Koramangala in Bangalore; Sohna Road, Udyog Vihar, and Sectors 32 and 44 in Gurgaon; and Powai in Mumbai.
- 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% in the case of Gurgaon; 300% in the case of Mumbai and 60% in Bangalore). Even if a broad comparison is drawn between the micro-markets preferred by startups and prominent secondary locations of leading cities, a rental differential of as low as 13-15% in case of Mumbai and as high as 35-50% in case of Gurgaon will be observed. It is thus recommended that startups continue to focus on operating out of cost effective suburban markets to fuel their expansion-led office leasing requirements.
- Flexible leasing terms. We feel that startups and landlords should engage in lease terms that can ease exit, lower cost and sustain them during their growth phases. It is recommended that both landlords and startups should remain open to incorporating ‘customized solutions’ such as allowing for limited fit-out costs or the absence of a lock-in period to lower costs.
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