For the past two years, the country’s office sector has seen several ups and downs. Over the last six months, office demand has started to recover with flex space gaining greater prominence post the pandemic. The pandemic has led to a shift in preferences — both from an occupier and an employee perspective. While occupiers explore ‘flexibility’ in leases, employees seek more ‘flexibility’ in work styles and workspaces. This is encouraging flex space operators to expand across cities as they cater to the evolving needs of occupiers in a commercial office.
Flex spaces have expanded at a fast pace in 2021 after a slow 2020. They leased about 4.8 million sq ft of space across the top six cities, a 60% rise YOY. Flex space leasing accounted for 15% of the total leasing in the top six cities, compared to 9% in 2020. The expansion was led by heightened demand for managed office and flex spaces from large enterprises as they pivot to hybrid models in the post-COVID era.
‘Flexible’ leases
Over the last two years, occupiers have learned to deal with the uncertainty of various kinds related to adapting to different workstyles, workforce management, employees returning to offices etc. while ensuring continuity of work at all times. Amidst this, they have started preferring flex space for the sheer flexibility that such spaces offer. This could be in terms of the lease period, lock-in period, redefining space as per requirements or even due to low capital expenditure led by uncertainty in the environment. Several consulting and technology organisations are ramping up workforce aggressively, and are looking towards flex space wherein they can increase or cut down space faster. Overall, while the pandemic has led to hub-and-spoke models across the world, we have seen very few instances of occupiers foraying into decentralised working in the form of hub-and-spoke models in India. While occupiers are strategising their workplace models, some are looking at flex spaces on an interim basis.
Large enterprises are increasingly setting up satellite and sales offices in non-metro cities. Talent availability, deeper internet penetration, low cost of living makes a strong case for non-metro cities. The pandemic also saw reverse migration, with people moving back to their hometowns. About 40% of the new startups founded in 2021 were from non-metro cities, providing ample opportunities for the surrounding ecosystem and infrastructure to grow. As a result, we anticipate flex space to expand in tier-II cities.
As of December 2021, flex space had about 5.5 million sq.ft. of space across 14 tier-II cities. We expect the stock to rise to 7.8 million sq.ft. by 2023. Major non-metros like Ahmedabad, Coimbatore, Indore, Jaipur, Kochi and Lucknow are witnessing robust flex space activity. While flex space operators continue to focus on curating niche services, institutional investors and developers have been increasingly incorporating flex spaces in their real estate portfolios, offering similar flexible leasing options and capabilities. Large developers and investors such as Prestige Group, Salarpuria, Brookfield have jumped onto the flex space bandwagon through various routes. While some have a revenue share agreement with the flex operators, others have even bought stake in the flex operators.
Elevation is key
The flex space market in India is evidently evolving. Flex space operators need to differentiate themselves in this competitive space. Technological intervention through data and automated maintenance, incorporating wellness and safety is pivotal to improve user experience.
Operators are also optimising amenities such as single-day work passes, smart occupancy management, fitness centre, and concierge services. Moreover, the pandemic has reiterated the importance of offices as a place for collaboration and flex space operators are striving to provide this vital aspect through events, hangout spaces, ideating corners and gaming zones.
Overall, customisation is key and operators that cater to occupiers’ changing needs of a next-gen workplace will do well. To summarise, flex space is slowly acquiring a prominent role in the commercial office market. Across the top six cities, we expect flex space stock to be at about 53 million sq.ft. by the end of 2023 from the current 40 million sq.ft., driven by curated, experiential spaces as desired by occupiers. As a result, demand from large enterprises and startups will keep up the momentum in flex space and spur expansion.
The writer is CEO, India, and Managing Director, Market Development, Asia, Colliers.
