The reasons are not hard to understand. Given the uncertainties of the past two years, companies want to be able access additional office space without making big investments. Once they have a clearer idea of how big a workforce they need to accommodate, which could take another six to 12 months, they would be more willing to commit serious capital.
With several companies still unsure about the kind of work models they will adopt for employees in the long term, the demand for flexible office leases continues to rise.
Last year, for instance, flexible office space accounted for about 15% of the 38 million square feet of total office space absorbed, according to consultants Knight Frank India. Property consultants believe this share will only go up over the next two years.
The reasons are not hard to understand. Given the uncertainties of the past two years, companies want to be able access additional office space without making big investments. Once they have a clearer idea of how big a workforce they need to accommodate, which could take another six to 12 months, they would be more willing to commit serious capital.
Sanjeev Dasgupta, CEO, Ascendas Property Fund Trustee, said tenants want the flexibility to plan their real estate requirements as they get a better understanding of the hybrid model. “Those occupying the premises are veering around to the view they should probably lease 75-80% of the space needed on a long-term basis and the rest on a short-term contract. That would give them room to get a better fix on things before taking a final call,” Dasgupta said.
This allows corporates to build in a high level of flexibility into their contracts. The lock-in period can be a short one and they have the ability to scale up or down while not committing capital expenditure. They can also choose centres that are closer to residential zones.
Karan Singh Sodi, regional managing director (India), JLL, said, “Over the last 24 months, many companies have hired resources, but not added to the office space. As such, the demand for flexible leases has increased as it allows one to start immediately without any capital expenditure.”
According to Viral Desai, executive director (transactions), Knight Frank India, business visibility right now is limited and companies are unable to plan for three to five years, even if things are going well and hiring is happening at an unprecedented pace. “Large occupiers like Shell, Microsoft, Google who have already moved on to this model, are taking up a part of their portfolio on a managed basis,” Desai said.
It is not just the big tenants, even smaller companies are going the flexible workspace way. “Smaller companies will tend opt for flexibility purely because this allows them to a sense of stability, gives them peace of mind and they can take quick action in uncertain times,” Sodi said.
As the trend for flexible spaces seems to be here to stay, large developers are starting to offer managed spaces as a service, consultants said. So far, there were managed operators who came in between the landlord and the tenants to manage these spaces, but that is shifting.
“Developers will provide the lease, they will fit out the space and will also try to manage the office as an option from facilities management standpoint. This will then also enable developers to collect bigger cheques, because if the rent is say 50, the developer is ending up collecting 150 by providing the end-to-end service,” Desai of Knight Frank India said.
While consultants say it is hard to predict the growth in absorption of flexible workspace, even if it continues to be at about 15%, the absolute number will only increase as the overall office space absorption rises.
