How Indian startup ecosystem is leading the commercial real estate market

India is home to the third-largest startup ecosystem in the world, with thousands of startups emerging every year. The country is moving on an exponential growth trajectory with over 70,000 registered startups and incubating 100+ startups, currently valued at hundreds of billions of dollars. In fact, this growth can also be accredited to the pandemic-led reverse migration of talent, which has created a pool of opportunities for local startups. 

Factors such as shifting perceptions towards entrepreneurship, technological advancements, tax benefits, and various government initiatives have provided a conducive environment for the startup ecosystem.

As Tier I cities navigate through increased urbanisation, expensive workforce, and ever-growing rents, Tier II and III cities have gradually become lucrative business territories, especially with the rise of the startup landscape.

In fact, driven by the strong demand for flexible and innovative real estate solutions and new hubs of economic activity, Tier II hubs are acting as a supplement for Tier I cities. For instance, around 50% of startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT) hail from Tier II and III cities. 

In line with this growth trajectory, the startup ecosystem has been able to bring forth positive changes within Indian commercial real estate, which are actively causing disruptions in various segments of this sector.  

Increased real estate demand

The burgeoning presence of startups in India has led to an increase in the demand for commercial real estate, which primarily includes offices, retail, warehouses, and industrial spaces.

With the growing demand and increasing consumption of commercial spaces in prime commercial areas, the rental prices and value of such commercial assets have also escalated, bolstering the profitability of real estate players across the sector.

Growth in Tier II and III segments 

As Tier I cities navigate through increased urbanisation, expensive workforce, and ever-growing rents, their position as lucrative business territories is steadily deteriorating, especially with the rise of the startup landscape.

Backed by the availability of cost-effective talent, investor confidence, and strong infrastructure, growing startups are proactively piloting their business towards Tier II and III markets, accelerating the demand for commercial and flexible workspaces in these segments. 

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Rise of flexi and co-working spaces

The stellar rise of startups within the nation’s growing economy has also fuelled the growth of new-age modern workspaces, including co-working and other flexi spaces.

These shared and serviced office spaces cater to the needs of small and medium-sized businesses, freelancers, and startups by providing them with affordable and flexible workspace solutions. Besides, customised and managed office space have also made their way among the growth drivers for co-working spaces. 

Driving infrastructure development

The real estate industry is witnessing the development of new infrastructure projects, which not only include new offices and retail hubs but also involve the building of industrial zones and massive logistic parks across major cities in India.

It has affected positively and will further result in improved transportation networks, better connectivity, and upgraded amenities to support the growing needs of modern businesses.

Moving the needle on technology 

Startups often look for commercial spaces equipped with smart technologies and sustainable features. In response, the real estate landscape has been making headway by building spaces that feature energy-efficient systems, smart management tools, and other digital infrastructure improvements.

Apart from making a noteworthy impact on the real estate market, startups are also actively contributing to the development and upskilling of India’s workforce. 

Nurturing sustainability and wellness

In today’s changing workplace dynamics, startups are placing a greater emphasis on sustainability and employee wellness, which is reflected in their choices, including their workspace.

They are seeking well-designed, eco-friendly, energy-efficient commercial real estate properties, as well as looking at establishments equipped with green spaces, fitness centres, and wellness programmes to promote a healthy work-life balance for their employees.

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Job opportunities 

Startups have emerged as powerful engines of job creation by directly employing over 10.34 lakh individuals in 2023, and it is expected to rise in the coming years.

That said, the hike in job opportunities has bolstered the consumption of commercial real estate, causing a greater demand for startup-centric office spaces. This interconnected relationship will create more jobs within the real estate segment, ranging from construction workers to managers, offering a substantial solution to the nation’s rising unemployment concerns. 

Garnering foreign investments and global recognition

Startups specialising in the tech domain are attracting foreign investment and fostering international partnerships, and this significant influx of capital will inevitably empower startups to expand their operations and reach new markets, thereby creating substantial demand for new operational spaces.

The symbiotic relationship between FDI, the startup ecosystem, and the real estate sector will become more evident with the development of grade-A office spaces, establishing India’s position as a global business hub.

Final thoughts 

Through innovation, flexibility, and the creation of dynamic workspaces, the real estate landscape has witnessed an influx of modern real estate that caters to the needs of future businesses, primarily in Tier II and III markets.

However, as with any rapidly expanding sector, some challenges need to be addressed to sustain the growth. Startups will have to leverage the potential of a strategic partnership between entrepreneurs and government initiatives, which will nurture a future, where innovation and tech advancements thrive and jobs flourish, which would catalyse socio-economic growth, alongside the positive impact on commercial real estate.

As India steps towards becoming a global economic powerhouse, the startup ecosystem will continue to act as a major accelerator for commercial real estate across the nation.

John Thomas is the Managing Director of Assets Xperts.