· Pune has the highest flex space penetration Pan India at 8.3%, followed by Bengaluru at 7.3%

· Technology sector remains the top occupier of Pune’s flex space, accounted 43% share in total seat uptake during 2020-H1 2023

· Baner-Balewadi and CBD hold 75% of the total flex stock in Pune; Viman Nagar and Kharadi to see increased traction

Driven by healthy investment and robust demand from Technology & other mainstream sectors, Pune’s flex space stock is expected to cross 8 million sq feet by 2025, accounting for 10% of the total office stock of the city, according to Colliers’ latest report ‘Pune – Tech-tonic shift to flex’. Pune’s flex space market has seen significant growth during the last five years, led by a burgeoning young population, presence of large tech corporates, and proliferation of numerous startups. Occupiers’ hybrid workstyles have further accelerated the demand for flex spaces in the city, especially post pandemic. Since 2018, Pune’s flex stock has witnessed a four-fold rise and currently stands at 5.4 million sq feet as of June 2023. This translates to 8.3% of the total Grade A office space of the city, the highest across the top 6 cities. While Bengaluru remains the largest flex space market Pan India in terms of size of flex stock, Pune has surpassed Bengaluru in flex space penetration, at 8.3%.

City-wise flex space penetration as of Q2 2023 (%)

Source: Colliers
Note: Data pertains to Grade A buildings
*Flex space penetration pertains to the share of flex stock in total Grade A office stock of the city

Flex spaces have been at the forefront in enabling new workspace models such as Flex + Core, distributed workplace strategy and Hybrid working for occupiers, and have become an integral part of occupiers’ portfolio. At an all-India level, share of flex space in occupiers’ portfolio has risen, from 5-8% in 2019, to 10-12% in 2023.

To meet the burgeoning demand from occupiers, top operators in the city have expanded rapidly over the last five years, with annual space uptake rising multi-fold each year. During 2022, flex space operators leased 1.77 million sq feet of office space, accounting for 35% of the total leasing of the city. The first half of 2023 also witnessed robust leasing by the flex space operators at 0.57 million sq feet, about 22% of the total leasing. As a result, flex space stock also witnessed a significant 4X rise, from 1.3 million sq feet in 2018, to 5.4 million sq feet as of June 2023.

Leasing by flex space operators in Pune (mn sq ft)

Note: Data pertains to Grade A buildings

“Pune has emerged as one of the popular top flex space destinations Pan India, registering a significant growth in the last 5 years. Share of Pune in Pan India flex leasing has increased manifold  from 5% in 2018 to 25% in 2022. Flex spaces in the city are also seeing increased occupancy levels, as enterprise outsourcing has become mainstream. As flexibility, scalability, and cost optimization remain ‘table stakes’ for occupiers’ office expansion strategies, flex spaces will continue to gain prominence in the city. A greater focus on flight to quality, increased customization and amenitization would  further provide a business case for a rental upside.”  says Animesh Tripathi, Managing Director, Pune, Colliers India

Technology – the largest occupier of flex space

As majority of Technology occupiers have adopted ‘Hybrid work model’ as a long term strategy, flex spaces have become an integral part of Tech occupiers’ real estate portfolio. Technology sector remained the top occupier of flex space, and contributed to 43% of the total seat uptake during 2020-H1 2023, followed by Engineering & Manufacturing at 27% share. As hybrid working is expected to remain a  mainstay for Technology occupiers, they will continue to lead flex space demand in the city.

“Flex spaces have seen remarkable growth in Pune in the last 5 years with its share in the city’s office stock growing from 2.8% in 2018, to 8.3% as of June 2023. Led by rising demand from Technology and Engineering & Manufacturing sectors, flex space operators are rapidly expanding their footprints in the city. While smaller operators continue to foray into the space, market continues to remain consolidated with the top 5 operators holding a little more than three-fourth share.. Amidst an evolving business  environment, occupiers will continue to commit towards Grade A operators seeking more scalability options across locations with increased customization.“ said Vimal Nadar, Senior Director and Head of Research, Colliers India

Baner-Balewadi and CBD house 75% of Pune’s flex stock

Pune’s Baner-Balewadi and CBD are amongst the top 10 flex micro-markets Pan India amongst ORR & SBD 1 (Koramangala, CV Raman Nagar, IRR, Indiranagar, and others) in Bengaluru and SBD (Madhapur, HITEC City, Kondapur and Rai Durg) in Hyderabad. As of Q2 2023, Baner-Balewadi accounted for 44% of Pune’s total flex stock followed by CBD at 31%. Kalyani Nagar, Mundhwa and Yerwada are some of the popular flex locations within CBD. Going forward, Viman Nagar and Kharadi also hold significant potential  for flex space expansion in next the 2-3 years due to robust supply pipeline, well-established infrastructure, and the upcoming metro connectivity in the region.

Also Read: Agami Realty forays into Mumbai’s upscale Real Estate market, inks pact to redevelop MHADA Society in Bandra

The post Pune’s flex space stock expected to cross 8 msf by 2025, to account for 10% of the city’s office stock appeared first on Square Feat India.

• With ~839,250 seats, operational flex stock reaches 53 mn sq ft across the top 7 cities
• Bengaluru leads with a ~39% share of overall flex stock, followed by Delhi NCR (~17%)
• Space taken up by enterprises (converted to per seat basis) in flex has risen by 3.2X during FY21 to FY23, to a record-high number; Bengaluru, Pune, and Delhi NCR are the biggest markets
• Pune witnesses maximum flex stock CAGR of 49% since 2018, followed by Hyderabad, Chennai, and Delhi NCR
• 10X growth in flex seats leased by startups between FY 21 – 23

Ascertaining the close integration of India’s flex sector into the commercial real estate sector, India’s Flex Space Market – The brightest star in the CRE galaxy, a JLL – Smartworks joint report predicts that India’s operational flex stock will reach 106 mn sq ft, doubling again over the next five years. The country’s operational flex stock has risen to 53 mn sq ft across the top seven cities, occupying around ~839,250 seats. This equates to an overall office stock penetration level of around 4.7%, making it among the fastest-growing flex markets globally.

Enterprises cutting across origin, scale, and industry segments are looking to integrate flex in their portfolios, from housing their flagship offices to high-end R&D teams and business functions. Notably, the space taken up by enterprises (converted to per seat basis) in flex has risen by 3.2X from FY21 to FY 23, to a record-high number. Further, the enterprise seat take-up recorded in FY 2023 is higher compared to the combined FY 2021 & FY 2022 numbers. Bengaluru, Pune, and Delhi NCR have been the three biggest markets during the past three financial years, combining for a ~ 60% share of all enterprise seats taken up during that period.

Pure-play managed space providers have been the drivers of the flex resurgence post-COVID, seeing their share grow by 3.4X over the same period. The managed space operators have seen their operational footprint grow by 10X to ~15 mn sq ft till March 2023 compared to 2018. However, hybrid players still hold the largest share, accounting for a substantial 44.2% of the operational flex stock.

Bengaluru leads the overall operational flex stock, accounting for a ~39% share on average since 2018, followed by Delhi NCR with an average share of ~17%. Over the same period, Hyderabad and Pune have displaced Mumbai in terms of the next highest flex stock across the top 7 cities. Pune has witnessed the maximum CAGR growth of 49% since 2018 followed by Hyderabad (40%), Chennai, and Delhi NCR. (30%)

Enterprise deal sizes getting bigger

Bengaluru, Pune, Delhi NCR and Mumbai lead large deal sizes > 500 seats with a combined 75-80% share from FY 21- 23. Enterprise deals with > 500 seats has the highest share amongst all deal size segments, pointing towards demand for bigger, managed solutions from large enterprises. While Delhi NCR and Chennai dominate the small deal size of < 100 seats with a combined share of 55-60% from FY 21-23.

Agile start-ups make a beeline for flex

Indian start-ups have leased more flex seats over FY 21 – FY 23 compared to any other sector except technology. Their share has risen to a high of 31% in FY 2023, the second highest for the last two financial years. The Indian start-up ecosystem is embracing flex as it offers them just the right amount of cost, location, and tenure flexibility while creating flagship, modern workplaces for their employees. Start-ups across diverse categories including manufacturing / industrial, BFSI, and consulting are now adopting flexible office formats to a greater extent.

What do flex space users think about flex: A JLL Smartworks Occupier survey

The survey reveals that an overwhelming 90% of respondents prefer Flex in some form or the other.A sizeable 63% of all respondents want flex as an adjunct to their overall portfolio – keeping conventional spaces but adding more flexibility to their portfolio. The survey found that 1/4^th of all large enterprises do not mind moving to a fully flex portfolio, thus indicating how demand is evolving with a service-oriented space solution being highly preferred, Small enterprises, on the other hand, prefer moving to a fully flex portfolio given the need for agility and cost optimization.

“Office First” meets flexibility

Respondents who have an ‘office first approach’ indicate a willingness to have up to 25% of their existing portfolio in flex spaces. 27% of respondents who currently advocate a work-from-office-only approach, still want to work from conventional offices only, but 1/3rd of them are willing to move up to 25% of their portfolio into flex.  Among those following a hybrid approach, around 39% are willing to move up to a quarter of their portfolio in flex spaces and they also show a higher degree of willingness to look at moving 100% of their portfolio into flex.

Note: ‘Office first’ is defined as the respondent set that follows a ‘hybrid’ or ‘work from office’  workplace strategy

Flex story in tier 2 cities

The JLL-Smartworks report finds that the flex story in tier 2 cities is gaining definite momentum. Business continuity has emerged as the biggest driver for respondents looking at tier 2 cities as part of their growth and geographic diversification plans. Lower operational costs, workforce mobility, and talent retention are top parameters to explore opportunities for flex spaces in tier 2 cities

It further highlights that sustainability has become a key criterion when choosing workspaces, particularly among the larger occupier segments. As sustainability becomes imperative for space selection, occupiers want to imbibe green building certifications as a part of their ESG goals. The share of space leased in green-certified buildings by flex operators rose to 51% in the 2021-Q1 2023 period compared to just 28% in the preceding period of 2019-2020.

The report suggests that flex operators can help support building investors and landlords in layering services that deliver a personal and memorable experience which aids in tenant management, better revenues and higher occupancy, and in turn better valuation.

Dr. Samantak Das, Chief Economist and Head of Research and REIS, India, JLL, said, “As employees demand more from their workplaces and occupiers look to revitalize their offices while adding a greater degree of dynamic space planning to their overall portfolio strategy, the flex sector has emerged as a strong partner. From an operational footprint of under 20 mn sq ft, the flex segment is 3X in size across the top seven cities, driven by rising demand for managed space solutions from enterprises cutting across geographies and industries. We expect the sector to continue its growth journey and is poised to double its footprint over the next five years, crossing the 100 mn sq ft mark across the top seven cities. Additionally, organizations are looking to tap into the opportunities offered by the tier 2 and tier 3 markets in terms of talent accessibility and mobility of their workforce. This does not mean that the demand for conventional office has been cannibalized.”

Neetish Sarda, Founder, Smartworks said, “The flex sector has been at the forefront of changing the dynamics of the CRE market. Flex has truly gone big as employee experience and technology intersect to create modern workspaces. It is no longer an afterthought or a short-term tactical decision. The continued rise of managed spaces, even post-COVID, has been truly remarkable, significantly propelling the overall growth of the flex segment. From FY21 to FY23, the extraordinary three-fold increase in the adoption of enterprise seats closely aligns with the widespread acceptance and adoption of the managed spaces and the overall flex model.”

Also Read: Tech companies occupy 50% of total flex space in India

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