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COVID-19 Second Wave: What the future holds for flexible workspaces


As the office market recovers from the second wave, enterprise demand is expected to grow steadily with companies preferring capex-light business solutions and moving away from traditional office spaces in the short term. 

India’s commercial real estate sector has embarked on a transformational journey over the past decade. The segment has been driven by the tech outsourcing boom following the global financial crisis (GFC), which has, in subsequent years, taken the form of high-end engineering R&D (ER&D) centres by leading global multinationals. Competitive office rentals and a large pool of engineering talent have strengthened office market fundamentals and driven robust growth in institutional investments in this sector. 

Within the office market, the Flexible Workspaces segment has carved out a niche for itself over the last few years. The term coworking has itself metamorphosed to the use of terms like flexible workspaces and managed space providers, indicating how it is now a strategic imperative for occupiers as part of their real estate portfolio planning. 

The segment has witnessed rapid expansion over the last 4-5 years and at around 30 msf of stock and with an operating capacity of more than 400,000 seats across the top 8 cities, it has emerged as an alternate workplace solution over the years. Almost all large operators in the country have created a flexible workplace portfolio comprising completely of blended coworking and managed space solutions which have given them an opportunity to grab a larger pie of the demand for commercial office space. 

Between 2016 and 2019, space take-up by flexible workspace operators has more than doubled and flex accounted for around 10% share of the cumulative Grade A leasing activity in 2019-20, up from just 2% in 2016. Top 8 cities including gateway markets such as Bengaluru, Delhi-NCR and Mumbai together accounted for more than 70% of the shared space take-up. 

Evolving business imperatives drive flex space growth 

Start-ups, small businesses and freelancers were the primary clientele in the initial years but large enterprise clients have increasingly warmed up to the concept of flexible workspaces given the benefits of flexibility with leasing terms, cost savings in the form of lower capital expenditure and customized services at differentiated price points. 

Operators usually provide a combination of co-working and managed spaces, with a mix of open and dedicated desks, meeting rooms and private cabins, leased to multiple tenants as per workstation basis for a fixed tenure. 

However, with enterprise clients becoming a crucial tenant segment, operators now provide dedicated, furnished spaces, fully customized as per the needs of the enterprise, maintained completely by the operator and with a greater focus on employee engagement. India’s favourable demographics has provided a further tailwind to flexible workspaces. Indian millennials, who comprise a large chunk of the country’s working-age population, seek a collaborative work environment that fosters innovation and efficiency. 

The growing demand for flexibility, collaboration and culture that a shared working environment could bring in are encouraging corporate occupiers to actively consider it. After all, they have an option to scale up anytime, anywhere. 

Healthy outlook but with changing business models 

What does the future hold for the flexible workspaces sector, especially against the backdrop of COVID-19? Despite the steady growth until the end of 2019, one can safely say that the dynamics of this sector have been altered over the last 12 months, some of which could be permanent. 

Flex has become a widely accepted business solution for most companies and for some of them, it’s a must-have. Going forward, robust growth will continue as enterprises, both large and small, look to optimize costs and lower their capex spends over the medium term. 

But flex space operators will have to look carefully at their own cost metrics and evaluate the financial viability of certain centres with low occupancy. Over the long term, ‘survival of the fittest’ is likely to be the norm with the larger, well-funded players likely to expand much faster and introduce new products and innovations to cater to rising demand from businesses. 

Industry consolidation is a likely corollary of the ongoing structural transformation with greater M&A activity paving the way for the dominance of the larger players over the next 3-5 years. 

In the near term, however, operators will continue to look at ways to attract/retain tenants, mainly through selective price discounts/incentives, depending on the tenant profile and size of operations. 

Operators will continue to review their portfolio and renegotiate with landlords wherever possible. 

Managed workspaces will gain greater traction with larger, multi-city operators attracting more enterprise clients. Move towards cubicle, private office formats will cater to higher enterprise demand. 

Demand from office de-densification and adoption of hub-spoke models/ hyperlocal smaller spaces which are closer to employees (to avoid long commutes) as a part of portfolio strategy will drive the demand. 

Moreover, with around 150 million of India’s office stock already more than a decade old is likely to undergo refurbishments over the next 5 years, there will be greater scope for swing spaces. 

In summary, despite the short term COVID-induced uncertainty, the future of the flex workspace sector remains sound. The disruption of Q2 2020 following the onset of the pandemic proved to be a temporary phenomenon with major flex space operators witnessing recovery in demand by around September last year. 

The momentum has continued into the current year with a healthy 57.8% QoQ growth in enterprise demand in the first quarter with companies such as Airbnb, OLA, Moschip and Xoriant etc. taking up space. 

As the office market recovers from the second wave, we expect enterprise demand to grow steadily with companies preferring capex-light business solutions and moving away from traditional office spaces in the short term. Occupiers will continue to focus on creating agile workplaces for the millennial workforce while strategically focusing on health, safety, wellness and hygiene. 

Flex space operators are already moving in that direction and deploying space management technologies and adopting tech and data-driven solutions such as touchless desk booking and check-in, visualization of desk occupancy, real-time floor plan views etc. to adhere to social distancing policies. 

Going forward, technology deployment will remain an integral part of workplace design and business plans will gravitate towards greater employee health, safety and productivity. This will continue to drive the need for new-age offices and flex spaces will figure prominently in enterprise space strategies. The future of flex spaces does look exciting and with immense potential! 


This article originally appeared in on May 5, 2021. 


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