Flex operators leased 8.8 million sq ft in 2021-H122

Mumbai, 22 September 2022: Total flexible (flex) space leased by flex operators in the 18-month period from January 2021 to June 2022 stood at 8.8 million sq. ft, which is over 63% of the total space leased in the preceding two years i.e., 2019and 2020 (14 million sq. ft). During the same period, the share of managed and hybrid operators in flex leasing also increased from 79% to 87% according to a JLL-CoWrks report titled ‘The age of flex: Creating future-ready workplaces.’ 

The first half of 2022 saw the flex segment receiving prominence in the occupier space strategies. As such, the share of flex in leasing activity rose to 20.4%, the highest to date. In fact, flex leased 2.8 million sq. ft in Q2 2022, the highest in three years and the H1 2022 numbers are already 30% higher than the annual flex space take-up for both 2020 and 2021 individually.

The total flex stock across the top seven cities (Bengaluru, Delhi NCR, Mumbai, Pune, Chennai, Hyderabad, and Kolkata) in India stood at 43.36 million sq. ft at the end of H1 2022. This represents a growth of 690% over the past six years from 6.3 million sq. ft in 2016. Bengaluru is the clear leader with 36% of the total flex stock in the country at 15.74 million sq. ft.

In seat terms, these seven cities have around 679,760 operational seats with as high as 82% of them located in New Business Districts - office corridors that have emerged over the past two decades and now account for the bulk of occupier activity. The rest of the seats are in the Central Business Districts (CBDs) with peripheral markets having a limited presence. The penetration of flex stock in overall office stock has gone up from 3% in 2020 to 3.9% as of June 2022. India’s flex penetration level is expected to go up to 4.5-5% over the next five years to reach the current levels of mature markets across EMEA and the USA. Given the projected penetration levels and previous growth trends, flex stock is expected to reach ~75 million sq ft by 2025.

Size matters 

Large operators with 5,000+ seats under management, and big operators with 3,000 to 5,000 seats under management today, have exhibited an 11X growth from 2016 till H1 2022 in terms of their portfolio size and hold a cumulative 81% share of the operational seats. A change in workplace strategies especially during the COVID period has seen large enterprises consider workplaces as a key tool to drive business and empower their employees. This is clearly seen in the numbers: 65,171 seats were leased by enterprises in the first half of 2022, which is already 54% of the total seats leased (121,000) during 2020 and 2021. In fact, in the last 18 months, more than half of the enterprise leases are of a large size comprising over 1,000 seats per deal.

“Domestic firms have seen a faster adoption of flex space with their share rising from 35% in 2019 to 46% during the first half of 2022. Since work from home is being gradually moderated, many employees may still prefer working closer to home, or staying back in their hometowns to continue working there, and thus flex spaces become the best solution. Among domestic firms, startups accounted for 37% share of seats leased in 2021 with Bengaluru seeing the maximum traction, followed by Delhi NCR and Mumbai. In H1 2022, start-ups were even more active with a 42.4% share of seats leased among domestic firms. Bengaluru was again the leader followed by Delhi NCR and Hyderabad in startup activity in flex spaces. There is a clear shift in occupier preferences, with the share of non-tech firms rising significantly in the flex ecosystem from 33% in 2019 to 43% in 2021. It stands at 40% in H1 2022,” said Dr. Samantak Das, Head of Research and REIS, India, JLL.

“Delhi NCR and Bengaluru led the way in enterprise seat leasing in the price bracket of INR 15,001 to 20,000 per seat per month over the last 18 months. With most corporates welcoming back their employees back to the office, demand for office space has already seen a spurt in the first half of 2022. At the same time, we are also witnessing a pickup of demand for flex spaces as it allows firms to plan their CAPEX well while giving their employees the flexibility of working from a managed work environment” he added.

“While traditional commercial real estate models are here to stay, with an increase in demand for Grade A commercial real estate as more companies are placing greater emphasis on the quality of their workspace as a driver in their ability to retain and acquire talent. Companies are also shifting focus to provide an elevated experience, better design, and more collaborative spaces with increased flexibility for their employees. Coworking space operators are uniquely poised to address all these requirements and are recognized as value accretive and complementary to the existing office market. With H1 2022 numbers displaying a 30% increase higher than the annual flex space take-up for both 2020 and 2021 individually, the segment is ready for a quantum leap and is anticipated to nearly double itself over the next five years,” said Parul Thakur, Senior Vice-President, Business Head, CoWrks.

The total flex seats leased in H1 2022 stood at 65,171, which is 75% of the total seats leased in 2021. Of these, the four cities of Bengaluru, Hyderabad, Delhi NCR, and Pune together make up approximately 73% of enterprise activity in the flex market.

Customization is a key ask from occupiers

In the current scenario, the most dominant offering is a per-seat cost of up to INR 10,000 per month. Growth, however, lies in the price segments of INR 10,000 to 20,000 per seat per month range. Over the last six years, the growth rate of flex seats in the range of INR 12,000 to 18,000 per seat per month crossed 9X, which is nearly at par with the growth rate of the seats in the lower price range (10X). This goes on to signify that occupiers are demanding more customization and are willing to pay a premium for such spaces at centrally located flex centers. This is despite affordability being central to occupiers’ plans of opting for flex space options. Clearly, the shift towards a flex-based space solution goes beyond the conventional cost metrics. It is now a function of premium amenities and creating future-ready, modern workplaces which allow occupiers to engage their workforce and foster an environment of innovation and collaboration.

Looking ahead

Managed office services will continue to drive the flex segment growth. However, the enterprise bespoke solution will enable a flex operator to curate the entire space search, design, and services continuum for occupiers. This is already emerging as a specialized service that will create a differentiating factor among operators. As occupiers look at flexible lease tenures but demand a greater degree of customisation for their workspaces and hospitality-like service levels, pure-play space offerings will no longer be sufficient. It is seen that large flex space players are dominant across all cities in driving the growth of flex leasing in India