Flexible Office Will Dominate Workspace

Advances in technology, a more mobile workforce and an uncertain economic growth are reshaping the business environment and transforming the occupier approach to real estate decision-making. Although the traditional priorities of location, specification and cost remain critical, this structural shift has led to stronger occupier demand for more flexible lease terms, better quality building services and enhanced offerings and experiences for end-users. Occupiers are opting smart flexi business solutions such as Sale and Lease back for stronger growth. In order to better understand the future trends, let us quickly recap some of the crucial trends that emerged in the year just gone by.  

The fiscal year 2020-21 had varied consequences for the real estate sector. One foremost area which has contributed largely to the real estate economy has been the management of office spaces. With the pandemic in place and remote working opportunities gradually being considered as the accepted norm of working, flexibility in terms of b2b perspectives and employee perspectives has captured significant interests from the partakers. This has facilitated the need for more innovative and improvised approaches to managing workspaces. 

Corporate real estate occupiers in India are moving towards core portfolios by accelerating their use of flexible space as they look to ensure flexibility of contract term (i.e. lease length), reduce up-front costs, or evaluate new markets. Flexible space can range from traditional serviced offices to relatively newer formats such as incubators, accelerators and turnkey solutions such as Sale and Lease back. 

Also falling into the category is Managed Office space and coworking, which can be operated by mainstream landlords or third-party providers and is undoubtedly attracting the strongest occupier demand in the current fiscal year. 

Flexible workspaces:

Unpredictable economic growth or contraction, shorter business cycles and rapid advances in technology require companies adapt to futuristic changes in business conditions more quickly than ever before. Occupiers are transforming their approach to real estate decision-making, enabling them to rapidly increase or decrease their office footprint on demand. 

While conventional long-term leases remain the norm, companies are increasingly assembling office portfolios by choosing options from a broad range of formats such as Managed office, co-working, serviced offices and turnkey solutions. As per a CBRE report, India’s 36 Mn sq-ft flexible space segment is likely to rise by 10-15% (y-o-y) in the next three years. With enhanced demand for customized and private spaces, corporate occupiers are focusing their investment portfolio in Managed Office spaces. 

Sale and Lease back – A turnkey solution 

Taking over the depreciating assets, currently owned assets are bought and leased as a customized solution. This allows direct cash influx enabling you to focus on the core business without displacement from existing workspace. The company can keep on utilizing same asset without possessing it. This option injects a direct in-flow of liquidity for the company while simultaneously improving the company’s balance sheet. 

Benefits of Sale and Lease back:

There are a number of benefits of the Sale and Lease back model. At the outset, this turn-key option converts property assets into capital without the need of the occupier losing control of the office space they occupy. This is extremely significant benefit. There are other benefits as well. Take for example the savings it offers vis-à-vis the conventional option of debt financing. The sale and lease back model prevents expenses associated with conventional debt financing for real estate transactions such as brokerage, valuation, and bank commitment fees.  

In this model, the rental payments are tax-deductible. Another key benefit. Then, if there is borrowing on the asset it will remove the associated debt from the balance sheet and improve the company’s debt to equity ratios 

Fit-Out as a Service:

Fit-Out as a Service is a unique concept to service the office fitout requirement without any capital investment, capex converted to opex, yet the entire design & execution as per client’s specifications. Whether it’s a low cost investment or a high end interior, all a client has to pay is a fixed rental for the term of the lease. 

Additionally, flexible rental options are offered to the companies that allows numerous benefits such as Tax Benefits, leasing office fitout offers lucrative tax benefits as payments are 100% tax-deductible. No large upfront cost means capital is retained with the business, maintaining working capital that can be invested into other revenue-generating operations. Fitout as a service can allow companies anywhere between 15-20% savings over traditional capex. 

Asset Management Services

There are several aspects to running a functional office space and managing assets can be one of the alarming costs & headache as seen by the CFOs and CREs. Outsourcing of all asset related issues such as asset tagging, MIS, disposal of asset, inventory churning & residuary risk management. One of the important options available to the client is Sale & Lease Back of their existing assets and additionally provides an option to buy furniture, fixtures, fitout, servers & other IT assets allowing cash injection and leasing them back allowing tax savings on the rentals paid. 

Thus, the balance sheet would become lighter, financial ratios would improve and companies can invest the cash in core business rather than staying invested in depreciating assets. 

Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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