Flex space to hit 106 msf in top 7 cities over next 5 years: JLL- Smartworks report

India’s operational flex stock is expected to touch 106 million sq ft (msf) over the next five years, a report has said.

India’s operational flex stock is expected to touch 106 million sq ft (msf) over the next five years. The country’s operational flex stock is currently at 53 msf across the top seven cities, accounting for around 839,250 seats, a new report titled ‘India’s Flex Space Market – The brightest star in the CRE Galaxy’ by  JLL– Smartworks has said.

Flexible space refers to a variety of offices used by companies to increase portfolio flexibility and reduce occupancy costs.

JLL is a global commercial real estate and investment management company, while Smartworks is a leading managed and flexible office space provider.

Bengaluru leads with around 39 percent share of overall flex stock, followed by Delhi-NCR with around 17 percent. Over the March 2018 to March 2023 period, Hyderabad and Pune displaced Mumbai in terms of the next highest flex stock across the top seven cities. Pune witnessed the highest compound annual growth rate (CAGR) of 49 percent since calendar 2018 followed by Hyderabad (40 percent), and Chennai and Delhi NCR (30 percent), the report said.

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Space taken up by enterprises (converted to per-seat basis) in flex rose 3.2 times between FY21 and FY23, to a record-high number; Bengaluru, Pune and Delhi-NCR are the biggest markets. Managed space operators have seen their operational footprint grow 10 times to around 15 msf till March 2023 over 2018. However, hybrid players—fully serviced flex spaces which are leased to multiple tenants on a per workstation basis for a fixed tenure—still hold the largest share, accounting for a substantial 44.2 percent of the operational flex stock, the report said.

Bengaluru, Pune, Delhi-NCR and Mumbai led large deal sizes of more than 500 seats with a combined 75-80 percent share from FY21 to FY23.  Delhi-NCR and Chennai dominated small deals of less than 100 seats with a combined share of 55-60 percent between FY21 and FY23, the report said.

Startups make a beeline for flex

Indian startups have leased more flex seats over FY 21-23 compared to any other sector except technology. Their share rose to a high of 31 percent in FY23, the second highest for the last two financial years. The Indian startup ecosystem is embracing flex as it offers them just the right amount of cost, location and tenure flexibility while creating flagship, modern workplaces for their employees. Startups across diverse categories including manufacturing/industrial, BFSI and consulting are now adopting flexible office formats to a greater extent.

Offices go big on flexibility

Respondents who have an ‘office first’ approach (offices that follow a ‘hybrid’ or ‘work from office’ workplace strategy) indicated a willingness to have up to 25 percent of their existing portfolio in flex spaces. As many as 27 percent of respondents who currently advocate a work-from-office-only approach still wanted to work from conventional offices only, but a third of them were willing to move up to 25 percent of their portfolio into flex.

Among those following a hybrid approach, around 39 percent were willing to move up to a quarter of their portfolio in flex spaces and they also showed a higher degree of willingness to look at moving 100 percent of their portfolio into flex, the report showed.

Flex gains traction in tier-2 cities

The JLL-Smartworks report finds that the flex story in tier-2 cities is gaining definite momentum. Business continuity has emerged as the biggest driver for respondents looking at tier-2 cities as part of their growth and geographic diversification plans. Lower operational costs, workforce mobility and talent retention are the top parameters to explore opportunities for flex spaces in tier-2 cities.

The share of space leased in green-certified buildings by flex operators rose to 51 percent between the first quarters of FY21 and FY23 compared with just 28 percent in the corresponding quarters of FY19 and FY20.

“From an operational footprint of under 20 msf, the flex segment is 3X in size across the top seven cities, driven by rising demand for managed space solutions from enterprises cutting across geographies and industries. We expect the sector to continue its growth journey and is poised to double its footprint over the next five years, crossing the 100 msf mark across the top seven cities. Additionally, organisations are looking to tap into the opportunities offered by the tier-2 and tier-3 markets in terms of talent accessibility and mobility of their workforce. This does not mean that the demand for conventional offices has been cannibalised,” said Samantak Das, chief economist and head of research and Real Estate Intelligence Service, India, JLL.

“From FY21 to FY23, the extraordinary threefold increase in the adoption of enterprise seats closely aligns with the widespread acceptance and adoption of the managed spaces and the overall flex model,” said Neetish Sarda, founder, Smartworks.