India’s Flex Space Market: FY23 Analysis 

India’s flex sector is now closely integrated into the CRE mainstream, having become pivotal in occupier portfolio strategies. The signs of this alignment are visible in the growth the flex segment has undergone over the past five years, with FY 2023 flex operational footprint now standing at 53.0 mn sq ft, having grown by nearly 400% from 2018.

Given that the flex segment has risen faster in its initial stage over the past half a decade or so at a rapid pace, we expect the growth to be more aligned to a steady state. As such, we expect that the operational flex stock is likely to reach around ~106 mn sq ft, doubling again over the next five years.

The flex sector itself has seen two varying paces of growth across its various formats. While pre-COVID the sector was driven by a mushrooming of more coworking-styled formats with an evolving focus on enterprise solutions, the post-COVID period has brought about a complete transformation. Pure-play managed operators (providing 360-degree bespoke space solutions) have been the drivers of the flex resurgence post-COVID growing at a CAGR of 70% since 2018, compared to the coworking and hybrid (coworking seats + less customizable enterprise solutions) formats which have exhibited a slower pace of growth than the sectoral growth of 28% CAGR over 2018-FY23.

The growth in managed operators has also been given a fillip by enterprises plugging in to flex with greater awareness of the changed dynamics around workplaces and portfolios. Enterprises have cut across geographies and their origin (foreign or domestic), scale (startups, MSMEs, big corporates, Fortune 500), and industry segments to adopt flex across their India footprint, from housing their flagship offices to accommodating high-end R&D teams and critical business functions. Flex is now being utilized across the entire real estate portfolio planning spectrum - for short to long-term space solutions with the flexibility of on-demand scaling up and down which provides the much-needed headroom and strategic input for dynamic resource planning.

This report outlines the flex sector’s journey and performance in India’s commercial office market. JLL and Smartworks conducted a survey amongst occupiers who are utilizing flex as part of their overall office portfolio. We hope that the occupier survey results offer you workable insights into the experience of enterprises using flex and in turn start your own portfolio optimization process.

Key highlights

• Pure-play managed space providers have been the drivers of the flex resurgence post-COVID, growing the fastest compared to the other players who offer either pure coworking spaces or hybrid spaces.

• Managed space operators have seen their operational footprint grow by 10 times to ~15 mn sq ft till March 2023 compared to the 2018 numbers. Both coworking and hybrid players have seen a decline in their respective shares of operational flex stock over the past two years.

• At a city level, Bengaluru is the overall leader in terms of operational flex stock, accounting for a ~39% share on average since 2018, followed by Delhi NCR with an average share of ~17%. Over the same period, Hyderabad and Pune have displaced Mumbai in terms of the next highest flex stock across the top 7 cities.

• The tech-dominated cities of Bengaluru, Hyderabad, Pune, and Chennai today account for circa 70% of the operational flex footprint across the top seven cities.

• Space taken up by enterprises (converted to per seat basis) in flex has risen by 3.2X in the period of FY21 to FY23, to a record-high number. It is interesting to note that the enterprise seat take-up recorded in FY23 is higher compared to the combined FY21 & FY22 numbers.

• While the tech sector continued to lead the seat take-up by enterprises over the last three years, its share declined significantly in FY22 & FY23. Indian startups have risen with aplomb, with their share now the second highest for the last two financial years, rising to a high of 31% in FY23. In fact, start-ups have leased more seats over the FY21 to FY23 period, compared to any other sector except tech.

• There has been a diversification of demand which is now of a very secular nature with all occupier categories, including manufacturing/industrial, BFSI, and Consulting adopting flexible office formats to a greater extent.

• The flex industry’s growth numbers also find concurrence in the occupier survey conducted as part of this report. A sizeable 63% of all our respondents want flex as an adjunct to their overall portfolio – keeping conventional spaces but adding more flexibility in their portfolio.

• The flex story in smaller cities is gaining definite momentum. A significant 26% of respondents with their current operations limited to tier 1 cities have also shown that they are willing to explore tier 2 cities for their medium to long-term expansion plans. The tier 2 story is an evolving one and one to watch out for.