Flex 'em!

In this week's edition of Open House, I shared my thoughts on the emerging trend of office peacocking. To read the full editions in your inbox every Thursday, subscribe for free?on my website (https://ashwinderrsingh.com/).

Over the past few years, a recurring question has come up on the professional work front - what's the future of an office? The pandemic forced most people to work from home (WFH). As restrictions began to ease, companies and employees were looking at whether WFH was here to stay or a temporary necessity.

What has happened in the commercial real estate market is the shift toward managed office spaces. The fundamental driver of this is flexibility. Workplace trends are leaning towards a flexible way of doing business, and India is well-placed as a destination that encourages entrepreneurship by adopting flex spaces.

Evolution

About a decade ago, specialised flex offices cropped up across India's commercial real estate market. They were initially labelled as business centres and offered formal office spaces and private cabins. The co-working model followed and featured a social working environment with private offices.

The latest evolution is managed office spaces. They're highly curated and allow for full control, shorter lease tenures, and enhanced technology options. In this segment, things are just getting started. Industry players and experts estimate that 18-20% of the total office supply adoption in the past two years has been procured by flex workspaces. On the supply side of things, about 250 companies have flex spaces. This has led to accelerated market leasing activity.

One report stated that 3.4 crore sq ft of new co-working space stock has been added since 2017 across key cities. Once companies began asking employees to return to the office, something interesting happened. They didn't want to invest as heavily in permanent workplaces. As Shesh Rao Paplikar, co-founder and chief executive of BHIVE Workspace, put it, "Uncertainty benefits flexibility in any industry."

2022 was a watershed year for the flex segment. Companies began to realise this was the new normal. It makes sense to invest in these kinds of spaces and not a large office campus. Initially, flex workspaces were what startups were looking for, but that's changing. A report by Colliers showed that about 40% of occupiers of all sizes see flex spaces as a core business operation.

Its components

You can look at flex office spaces and the umbrella category within the office real estate segment. Co-working and managed office spaces (MOS) are its main sub-categories.

Co-working spaces typically include multiple clients in one space. The leasing terms can range from 24 hours to a multi-year deal. There are a great deal of options available. Occupiers can sign up for just a dedicated desk, a cabin, or an entire floor. Usually, space is leased out on a per-seat basis. Here's where companies like WeWork, Table Space, and AWFIS operate.

The MOS model is increasingly being seen by operators and occupiers as the other big thing in commercial real estate. It provides companies with a suite of end-to-end customised service offerings based on specific needs. It gives them complete control.

What's propelling the shift?

It all started with the pandemic. It had an irreversible impact on the employee-employer relations. More companies, some perhaps begrudgingly, have acknowledged hybrid work culture. That set off something in the commercial real estate market where the usual office space options didn't cut it. Here are some reasons why flex workspaces are in:

• Rapid urbanisation has meant cities have become focal points of employment opportunities. The natural result is an increase in the demand and supply of office spaces. By the way, these don't apply to the big metros alone; tier 2 cities are also in the mix.
• India has seen a transformational shift toward IT/ITES services, startups, and an evolving employment structure. These have propelled the demand for flex spaces. In the past 18 months, 40-50% of absorption is from the IT sector.
• From a financial standpoint, flex spaces fit the bill. There's no large-scale capital investment. Short and medium-term lease agreement options mean companies needn't break the bank.
• Amongst occupiers, there's a strong urge to adopt digitisation of the workplace alongside other aspects like employee well-being initiatives and meeting sustainability targets.

A bright future

In the dynamic era of hybrid work, modern offices are transforming into collaborative hubs, merging the physical and digital through technology. The flex-space sector already stands out as one of the fastest-growing segments in commercial real estate. India is in the lead as the fastest-growing flex office market in the world, with about 68 million sq ft.

Smaller cities like Indore, Jaipur, Coimbatore, and Vizag are emerging as new growth engines fueled by a flourishing talent pool, competitive real estate costs, and big infrastructure improvements. Several surveys have shown companies see this as the future of work.