Out with the old, in with the Flex: The Rise of Flexible Workspace Segment in the Office Market

Welcome aboard to the Corporate Realty Roundup Newsletter, where we will chart the course of how corporates lease offices, commercial real estate trends and business growth. The landscape of workspaces is undergoing a rapid transformation, and our newsletter aims to be your compass in navigating these exciting changes!

Industry leaders, niche consulting and advisory giants in the commercial real estate space have been headlining the news with landmarks achieved by Flex in the way India occupies office. While the noise has been adequate, it is prudent to wonder whether this is just a trend, or a fundamental transformation of how we work?

The emergence of flexible workspace operators has definitely fuelled the argument that Flex is here to stay. Landlords and operators have green-lit these new workspace models as increased occupancy rates & new revenue streams prove to be lucrative.?

Profitability is charming, but is it a complete rewrite of the rulebook?

During the first quarter of the fiscal year 2024, flexible space operators emerged as the second-largest sector in office space leasing, accounting for 22% of the total leased space.?

As more of these numbers pile up, a dispassionate argument can be made that operators & landlords will pivot to be more profitable. As COVID & remote work waves peak, this is expected behavior for supply but would that guarantee a deeper shift in the industry?

With India’s total operational flex stock on the rise, it is important to understand the split by type of this rising operational flex stock. There has been a 10X growth in operational flex stock of managed offices in the last 5 years while the other two categories hybrid & coworking have struggled to grow at the same pace

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As ambassadors of India’s Flex workspace marketplace, we can breakdown the occupier and investor sentiment for you as follows:

1. Overall Flex will boom as organizations internalize ‘core+flex’ models: Large operators are witnessing growing demand from global corporations, which prioritize high-quality office space to facilitate portfolio expansion and consolidation.

As hybrid work models gain popularity, companies seek versatile solutions to accommodate fluctuating space requirements, further driving demand for flexible workspaces.

2. Hybrid still remains the biggest type in the Flex: Hybrid still holds the biggest piece of the pie at 44.2% currently making it clear that while alternative work models gain popularity, they are still a long way to dethrone the ‘office-first’ ideology.?

Occupiers are happy to accommodate flex in their portfolio but there is still a long way to go before it becomes a ‘CRE main’. Around 50% of corporates functional in India have indicated a preference to make Flex account for 10% of their total office space portfolio by the year 2025.

3. Rise of managed office is a clear indication of a long term shift in sentiment:

Increasing market share of well-established corporates and MNCs in the demand of flex indicates that managed offices are going to become a key contributor in the Indian office space market. Managed office adoption shows that corporations do not only prefer Flex for efficiency, cost-effectiveness and flexibility but also for the overall employee experience.

Hybrid work models combine the elements of traditional office leasing with flexible workspace solutions, offering a blend of dedicated private offices and shared coworking areas within the same property. This mix offers great options to occupiers in terms of preferences, flexibility of scaling & operating their business, convenience and cost-effectiveness.?

Here, we are at the brink of a more employee-driven change in occupier preferences.

How are Managed Offices changing the rulebook?

In a sector that has grown at a CAGR of 28% since 2018, managed offices or serviced offices have managed a stellar CAGR of 70% in the same time frame. The post-COVID movement with the average employee at the forefront has finally found its success in increased efforts of corporations trying to better the employee experience removing blockers like commute, migrations, inefficient office layouts and the idea of their workplace feeling like a mass-produced office.

Here is why managed offices have trumped other workspace models in recent times:

1. Focus on Customization and Brand Identity:

Occupiers choosing pure-play managed offices prioritize customization to align the workspace with their brand identity and company culture. The belief that a tailored office environment fosters a sense of belonging and pride among employees is ultimately focused on enhancing their overall experience.

2. Emphasis on Privacy and Professionalism:

Pure-play managed offices offer a higher degree of privacy and professionalism compared to hybrid or coworking spaces. Occupiers value these aspects as they contribute to a conducive work environment where employees can focus and collaborate.

3. Desire for Dedicated Amenities and Services:

Occupiers seek managed office solutions that provide dedicated amenities and services tailored to their specific needs. This could include amenities such as meeting rooms, event spaces, IT infrastructure, security services, and concierge assistance, all of which contribute to a seamless and enjoyable employee experience.

4. Importance of Control and Flexibility:

While pure-play managed offices offer a higher level of control and customization, they also provide occupiers with the flexibility to scale up or down as needed. Occupiers value this flexibility as it allows them to adapt to changing business requirements without the constraints of long-term leases or shared spaces.

5. Commitment to Employee Well-being and Productivity:

Choosing pure-play managed offices reflects occupiers' commitment to prioritizing employee well-being and productivity. By providing a high-quality, tailored workspace, occupiers aim to create an environment where employees feel supported, motivated, and inspired to do their best work.

Hybrid remains the hero but Managed Offices will recalibrate the industry

Amidst the shifting dynamics of the office real estate market, the growth of managed offices is reshaping the landscape, heralding flex as a permanent movement rather than a passing trend.?

As managed offices continue to proliferate, they signify a fundamental shift towards a more dynamic and agile approach to office leasing.?

By providing occupiers with the tools and resources to create personalized workspaces that reflect their unique culture and values, managed offices are fostering a sense of ownership and empowerment among occupiers while also cementing flex as a permanent movement reshaping the future of work and redefining the way we think about office space in the modern era.

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