Mumbai: When you start a company, would you hire an administrative officer or a sales person first?” asks Madhusudan Thakur, India general manager for Regus Plc, which runs business centres across the world.
“Ninety-nine per cent of the time, people will say sales person,” Thakur said. “But when you start, you need someone who will take care of your calls, your printouts, the courier service, and anything that you attach to functioning professionally.”
Serviced business offices, or business centres, enable such companies to plug and play, a concept that’s common abroad and is gaining ground in India.
Multinational companies (MNCs) look for such spaces to kick off their operations in the country. They need an office equipped with the latest technologies, facilities and services to hit the ground running. The space can be rented for as little as an hour or weeks and months. Five-star hotels have thus far grabbed most of this business.
The business, which has several small-time operators who simply rent out rooms, is about 40% organized, according to Thakur. At the higher end, business centres can accommodate up to 100 people and office space can be customized to range from 50 sq. ft to 5,000 sq. ft, he said. The business, valued at about $25 billion (Rs1.15 trillion) globally, is worth about Rs1,000 crore in India, and expected to grow at 30% annually, according to estimates by Regus.
Welcoming business: The lounge of a Regus business centre. Firms that use Regus services in India include Apple, Intel and American Express.
“There are around 38 organized business centres (both national and international) in India,” said Renu Kakkar, spokesperson for Apeejay Business Centres, one of the top firms in the country, apart from Regus, Avanta Business Centres, DBS Office Business Center and Servcorp Ltd.
Users also include those who have occasional need of a small office or whose jobs require them to be on the move, which includes lawyers, chartered accountants and consultants. Even some start-ups have chosen to work out of such centres. The ratio of MNCs to start-ups hiring space four or five years ago was 70:30, but today the ratio has changed to 50:50, said Thakur.
Ashish Mittal, founder and director, Cosmic Accfin Solutions Pvt. Ltd, a financial consulting start-up focused on small and medium enterprise, works out of Regus. “Any start-up is looking to save money wherever it can,” he said. “Also, until the company reaches a size of 40-50 people, it doesn’t make sense to move into their own office.”
It doesn’t tie up their investments in security deposits or huge rentals from day 1, Mittal added.
London-based Regus, which entered the Indian markets in 2004, has been in business globally for the past 19 years. Some of the companies that use Regus in India include Research In Motion Ltd (which makes the BlackBerry), Apple Inc., McAfee Inc., Intel Corp., Giorgio Armani SpA, American Express Co. and PVR Ltd. Harley-Davidson Motor Co. will be moving in soon, said Thakur.
Companies looking for so-called swing space are also potential clients. “Most companies look for space for three-six months, in between an office move,” said Vincent Hoogewijs, general manager, Four Seasons Hotel, Mumbai.
Hoogewijs said hotels will continue to compete with business centres as the hospitality industry still hasn’t recovered from the slump caused by the global financial crisis, terrorism and health scares.
“Some of the offices were asking these companies for high rents. We tried to lower our rent and capture some of that market,” said Hoogewijs. “When the occupancy in hotels recover and rates recover like before, all these offices will have to pay decent rates.”
Sahara Star, just outside Mumbai’s domestic airport, sees a great deal of demand from people who are always on the move and need space ranging from 2 hours to two days. It makes Rs3 lakh a day providing business services.
“The whole objective is to maximize revenue,” said Vivek Kumar, chief executive officer, Sahara Star. “Depending on the demand and supply, there is a lot of dynamism applied to the pricing.”
Hotels will work out to be a more expensive proposition, say the business centres. “Hotels are struggling to maintain even the threshold occupancy level,” said Thakur. “Hence, they are trying to bundle their hotel and business services together and sell it to the corporates at throwaway prices.” Still, working out of a hotel will be 25-30% more expensive than a facility like Regus, he said.
Business centres also offered discounts to ensure they could fill their space, according to Persis Debashish, director at International Grout Operations Pvt. Ltd, and a Regus user. Debashish said she places value on being able to find a small office in a good locality as it adds to the firm’s cachet.
Ravishanker Raman, executive director at Infrastructure Leasing and Financial Services Ltd’s Cluster Development Initiative, which is involved in the implementation of infrastructure projects for small and medium enterprises and training of skilled manpower, has been using Regus for 10 months now. “We were able to save on rentals, so the cost element was what brought us here,” he said.
The demand for temporary business space has been on the rise because of the cost of real estate remains high in some Indian cities, despite the boom having ended.
The potential is vast, going by global trends. In major cities across the world, such as New York, serviced offices account for 10% of the total office space available, while in India, the serviced office inventory would amount to about 0.1%, said Meenal Sinha, India general manager of Australia-based Servcorp.
With the global downturn showing signs of ending, Vanita Bhandari, executive director of DBS Business Centers India, expects 80% occupancy by the end of 2010. However, UK-based firm Avanta that came into India last year may shut its Mumbai centres.
“We are in talks with the developers and if nothing works out, as a last option we may shut down the two centres in Mumbai,” said Amit Bansal, director, sales and marketing, Avanta India. “However, the centres in Delhi and other places would continue.”
Mumbai is turning out to be costly for Avanta, which entered the market when the real estate sector was booming. “It doesn’t make sense to carry forward losses in your books, sometimes you need to make a practical decision,” said Bansal.
The business centres are now considering smaller cities where five-star hotels may not be present.
“We are looking at tier II cities but it hasn’t happened as last year we dropped the idea waiting for everything to stabilize,” said Bhandari of DBS Business Centers. “It could be in the pipeline from next year onwards.”
There’s sustained demand for such centres in cities such as New Delhi and Chennai as well. Regus, which has around six centres in New Delhi, plans a couple more. Chennai has seen steady demand for about six months. “We are regularly maintaining a high occupancy level of 90% in Chennai which is a true barometer of regular demand,” said Thakur.