Flex your workplace

The flex space industry in India was at a crossroads in 2020 in the wake of the COVID-19 pandemic. With a massive remote working experiment underway during 2020, physical occupancies in offices and flex spaces dwindled. The health crisis led to a transformative shift in the workplace and work patterns.

Occupiers and CRE decision-makers are yet to freeze a workplace playbook that best suits their requirements and meets employees' revised expectations around work and the workplace.

Before the COVID-19 health crisis, the flex industry in India was showing healthy signs of becoming mainstream. While most firms started as "coworking" companies, they soon metamorphosed into "flexible workspace" and "managed space" providers. From targeting freelancers, entrepreneurs and start-ups, they started catering to large enterprises, offering them built-to-suit office spaces.

Flex offices are now a key strategic part of occupiers' real estate portfolios. And the ethos of serving freelance and start-up culture has not been ignored either. The flex space industry is going through its learnings and evolution and has come out stronger in recent times.

2019 was a landmark year for the industry when flex spaces leased over 10 mn sq ft across the top seven cities. The following year, 2020, however, was challenging. Many flex operators closed centres given the negligible occupancies as part of their portfolio rationalisation and had put some in-discussion leases on indefinite hold. However, by the end of the year, the segment proved its agility by pivoting to newer revenue models, taking up more managed office responsibilities and becoming a partner to corporates, who sought to find the balance between a hybrid work model and optimising their real estate portfolios.

Through this report, we look at how the flex industry is playing its part in the workplace culture revolution currently underway and how it has pivoted to not only survive but thrive. Given the way the office is being reimagined, and occupiers are focusing on technology, sustainability and aligning worker expectations for their portfolio optimisation strategies, flex is becoming a key component in this journey.

With the Indian start-up culture throwing out more unicorns and soonicorns, we are looking at home-grown companies targeting the audience in the tier-2 cities and towns and providing local and hyperlocal services. The flex story is just starting or rather restarting with a brand-new storyline.

The highlights of the report are:

• Of the total office stock in the top seven cities, the flex space stands at 3.5%. It could reach around the 4.0-4.5% mark over the next two years.
• Given the expected growth, flex stock is likely to rise by 40-45% over the next two years.
• The share of flex in the total Grade-A office space leasing (in the top seven cities) in 2019 hit a high of 16%. It was the year of historic highs for the Indian office markets. It dipped to 9% in 2020, before reaching 13% in the first three quarters of 2021, though the absolute numbers remain off the previous highs.
• Over the past four years, the average lease size has been steady-between 52,000 sq ft and 56,000 sq ft. The average deal sizes for enterprises were 15-20% higher than the overall average.
• India's flex space market is gearing for consolidation in the medium to long term. Even though many flex and managed space providers are start-ups, some have attracted healthy venture capital funding and scaled up operations tremendously.
• Cost optimisation will be crucial to businesses. A flex space provider, which takes on the lease responsibility whilst also providing a fitted-out space and managing it, will give a considerable cost advantage to occupiers.
• Corporates are evaluating different workplace models, fostering the growth of flex operators in tier 2 cities.
• Domestic tech firms, targeting the interiors and cities/towns beyond metros for business expansion opportunities, want to set up regional offices. Such growth plans will need flex space operators as the latter can enable quality workspaces with quick turnaround times.