A flexible office will dominate the workspace -Rahul Sarin
Advances in technology, a more mobile workforce and uncertain economic growth are reshaping the business environment and transforming the occupants’ approach to real estate decision-making. While the traditional priorities of location, specification and cost remain critical, this structural change has led to greater demand from occupants for more flexible rental terms, better construction services, and offerings and experiences. improved for end users. Occupants opt for smart flexi business solutions like Sale and Lease back for stronger growth. In order to better understand future trends, let’s quickly recall some of the crucial trends that have emerged over the past year.
The 2020-2021 fiscal year had various consequences for the real estate sector. One of the main areas that has contributed significantly to the real estate economy has been the management of office space. With the pandemic in place and remote work opportunities gradually being seen as the accepted work standard, flexibility in terms of b2b perspectives and employee perspectives attracted significant interest from participants. This has facilitated the need for more innovative and improvised approaches to the management of workspaces.
Commercial real estate occupants in India are moving towards core portfolios by accelerating their use of flexible spaces as they seek to ensure flexibility of contract duration (i.e. lease term), reduce initial costs or assess new markets. The flexible space can range from traditional serviced offices to relatively newer formats such as incubators, accelerators and turnkey solutions such as sale and lease.
Also included in this category are managed office space and coworking, which may be operated by traditional owners or third-party vendors and arguably attract the highest occupant demand in the current fiscal year.
Unpredictable economic growth or contraction, shorter business cycles and rapid technological advancements are forcing companies to adapt faster than ever to futuristic changes in business conditions. Occupants are transforming their approach to real estate decision making, allowing them to quickly increase or decrease their office footprint on demand.
While conventional long-term leases remain the norm, companies are increasingly building office portfolios by choosing options from a wide range of formats such as managed offices, coworking, serviced offices and turnkey solutions. hand. According to a CBRE report, India’s 36 million square foot flexible space segment is expected to grow 10-15% (year-on-year) over the next three years. With an increased demand for personalized and private spaces, the occupying companies are concentrating their investment portfolios in managed office spaces.
Sale and Lease back – A turnkey solution
Taking over impaired assets, currently owned assets are bought and leased as a personalized solution. This allows for a direct inflow of cash, allowing you to focus on your core business without moving from the existing workspace. The business can continue to use the same asset without owning it. This option injects a direct inflow of cash for the business while simultaneously improving the business balance sheet.
Benefits of sale and leaseback:
The Sale and Lease back model has a number of advantages. Initially, this turnkey option converts real estate assets into capital without the occupant losing control of the office space they occupy. This is an extremely important advantage. There are other advantages as well. Take, for example, the savings it offers over the traditional debt financing option. The sale-leaseback model avoids the expenses associated with conventional debt financing for real estate transactions such as brokerage, appraisal and bank commitment fees.
In this model, rents are tax deductible. Another key advantage. Then, if there is a loan on the asset, it will remove the associated debt from the balance sheet and improve the company’s debt ratios.
Accommodation as a service:
Fit-as-a-service is a unique concept to meet office fit-out needs without any capital investment, capital expenditure converted to operating expenditure, but complete design and execution to specification. customer. Whether it’s a low-cost investment or a high-end interior, all a customer has to pay is fixed rent for the term of the lease.
In addition, there are flexible rental options available to companies which allows many advantages such as tax advantages, rental office layout offers lucrative tax advantages as the payments are 100% deductible. No significant up-front cost means capital is retained with the business, maintaining working capital that can be invested in other income-generating operations. Fit-as-a-service can save businesses between 15-20% compared to traditional capital expenditures.
Asset management services
There are many aspects to managing a functioning office space and asset management can be one of the alarming costs and headaches seen by CFOs and CREs. Outsourcing of all asset related issues such as asset tagging, MIS, asset disposal, inventory churning and residual risk management. One of the important options available to the client is the sale and lease of their existing assets and additionally offers an option to purchase furniture, fixtures, fixtures, servers and other assets. IT allowing the injection of liquidities and their relocation allowing tax savings on the rents paid.
Thus, the balance sheet would lighten, financial ratios would improve and companies could invest their cash in their core business rather than remaining invested in depreciating assets.
Warning: The opinions expressed in the above article are those of the authors and do not necessarily represent or reflect the opinions of this publisher. Unless otherwise indicated, the author is writing in his personal capacity. They are not intended and should not be taken as representing any official ideas, attitudes or policies of any agency or institution.