Commercial real estate market witnessing early signs of ‘caution among start-ups’: Experts

Commercial real estate market witnessing early signs of ‘caution among start-ups’: Experts

Edtech company Byju’s has vacated its largest office space in Bengaluru as it seeks to cut costs and shore up liquidity amid a delay in funding. This, say real estate experts, is an outcome of global headwinds and multiple macroeconomic factors. The commercial real estate market may have remained steady throughout, but it’s now gradually witnessing early signs of ‘caution among start-ups’.

Many have also resorted to taking up space in co-working spaces rather than conventional offices to save costs, they said.

Post-COVID, companies across sectors have become cautious about office leasing. A gradual and yet consistent increase in demand was observed as the industry recovered to pre-COVID levels over the last three years. Well-funded start-ups led this recovery as office and manpower costs became a top priority for growing companies.

"We have to bear in mind that globally the sector hasn’t recovered yet due to multiple ongoing macro-economic factors, including work-from-home, the Ukraine war, and the banking crisis (in the US). The commercial real estate market in India has remained steady throughout, but we’re now beginning to see early signs of caution among start-ups," said Raja Seetharaman, Co-founder at Propstack.

"With the funding squeeze, most companies are unable to raise their next round while investors focus on profitability instead of blitzscaling. As start-ups conserve capital, we expect demand for office space to remain subdued over the next few quarters," he added.

Others say that many start-ups are also shying away from leasing conventional office spaces and making a beeline for flex spaces. "Byjus’ does not necessarily reflect the health of the start-ups in terms of office space leasing. It is more of a financial issue and not representative of the entire start-up fraternity. Currently, many start-ups are taking up more flex space rather than leasing conventional office spaces. It offers them the flexibility of scaling up and down when the need arises," said an expert who did not want to be named.

A recent report said that 31 percent of start-ups are going the flex way.

There is a slowdown in commercial leasing on account of global headwinds, irrespective of the company being a start-up. "Capital has become dearer, and funding is slow. Start-ups are being cautious, and some are exploring flexible workspace options," said another expert, adding it also depends on the sector that they are operating in and whether there is demand for the segment.