Flexible Workspace Cements its Place as Mainstream Real Estate Asset Class

With Flexible working spaces carving its own market niche, the traditional views of Indian real estate is seeing a disruption in the sectors growth and market demand. Changing real estate dynamics, and the offer of easy letting and maintenance for building owners and occupiers in the corporate arena could guarantee flexible and co-working spaces dominance as a mainstream real estate asset class.

“Flexible workspace operators will blur the lines between workspace and amenities, creating value for building owners, lean toward premium workspace design, and continue to pioneer new products to benefit occupiers and, critically, their workforces,” says Ritesh Sachdev, Head of Occupier Services, India and Managing Director, South India at Colliers International India.

As the shape of occupier demand continues to shift, building owners and, as part of this, will have to decide whether to self-perform flexible workspace and amenity spaces, or; acquire, invest in or partner with an operator. This decision will hinge on whether a building owner wishes to switch from a transactional business to a service and hospitality business.

The current forecast is that by 2028, 20 years on from the global financial crisis, we could see as many as 140,000 flexible office locations globally – up from just 13,500 in 2008.

The trend is in continuation with Real estate’s rehash as commercial spaces is undergoing an evolution. The demand can be attributed to the need for flex space and innovation around the office models as well as the flexibility in the procurement and operations from a flexible office space. The provision of flex working space also happens to have an advantage for the office space owners as they can easily remodel and cater to a larger market requirement without having to invest heavily in capital expenditures and base changes.

2019 will be a pivotal year in this respect, where the user experience of the individual employee will drive commercial real estate decision making.

Some of the trends to watch out for in Bengaluru and NCR are as below:

Bengaluru: Flexible workspace by 2018 was the third biggest source of Grade A office space gross absorption in Bengaluru (Bangalore) – in a city where startups opt for co-working spaces with flexible letting options, more often than conventional office spaces.

Flexible workspace operators leased 2.3 million sq. ft. of office space in 2018, registering a two-fold increase from 2017. Interestingly, whereas the CBD has seen significant leasing activity by flexible workspace operators for several years, in 2018 there was a noticeable increase in micromarkets such as the Secondary Business District (SBD) and Outer Ring Road (ORR) regions of the city. Together the SBD and ORR micromarkets accounted for around 60% of the total space leased by flexible workspace operators.

Delhi NCR: Delhi NCR, particularly Gurgaon and Noida are leading the flexible workspace markets, as more and more offices opt for easier systems and property utility. Add to that, the property requirement by newer startups looking to operate in North India basing Delhi NCR as their centre of operations.

Flexible workspace operators leased about 1 million sq. ft. of office space during 2018, which accounted for 12% of the overall gross absorption. Gross absorption in 2018 was the highest for the last five years. In 2018, flexible workspace operators in Delhi-NCR preferred Gurgaon. Consequently, Gurgaon represented 64% of total new leasing by the flexible workspace sector, while Noida represented 30% and Delhi just 6%.

Over the next three years, it’s expected the flexible workspace market to grow rapidly with the rise in demand from start-ups – which currently is the trend, small businesses – as they operate from make-shift offices with profit centred rent systems, as well as large organizations – as they run and setup new offices in the country.

Further, it’s expected that the occupiers from the information technology-business process management; banking, financial services and investments; and fast-moving consumer goods (FMCG) sectors will make up the bulk of flexible workspace centres due to the innovative, cost-effective and fully serviced attributes of alternative workspace solutions.