Rental Growth cements flex leasing industry’s impact on real estate

A consistent inflow of small, medium, and large enterprises into managed office spaces across the country is leading to an increase in rentals owing to demand outstripping supply. This shift in industry dynamics is thereby cementing the flexible managed office segment’s position as one of the major growth drivers of the commercial real estate  industry.

According to property consultant Anarock, Mumbai has seen the highest growth in monthly rentals at flexible office spaces at 27% in the last four years followed by Gurugram at 19%.  This bodes well for the industry as it will lead to more supply and attract investors given the

co-working industry’s track record of consistently yielding rich results for its stakeholders over the last five years.

Over the last decade, companies have been increasingly opting for flexible managed office spaces to save on fixed costs while bringing more flexibility and agility to the business.

This trend was accelerated by the COVID-19-induced pandemic and today, nearly a fifth of total  new office space leasing is absorbed by co-working spaces across the top seven cities.

A Good bet for investors

Given the sector’s strong fundamentals in consistently attracting occupiers across the board, there is great demand among startups and large technology companies, making it an attractive proposition for investors.

Investments in co-working spaces become even more lucrative due to the greater flexibility and lower risk exposure it offers as against traditional real estate investments.

Similarly, the shared nature of these flexible office spaces allows for faster adaptation by occupiers and meets their evolving needs, thereby mitigating risks and fast-tracking the path to profitability.

There are multiple ways in which investors, both institutional and retail, can participate in co-working spaces’ growth journey including Proptech platforms and alternate investment funds among others.

These platforms have played a critical role in enabling retail investors to invest in India’s fast-growing commercial real estate segment which was out of bounds earlier due to high upfront investment requirements and lack of market expertise.

Studies by Anarock suggest that investments in the flexible office sector grew more than threefold to Rs 4,600 crore between 2020 and 2023 from Rs 1,400 crore received in funding between  2015 and 2019.

The inflow of new players to expand the market

The success of flexible managed office spaces is attracting new players into the fray which is helping expand the market while creating new opportunities.

Avendus suggests in a report that around 250 flex or co-workspace operators, with $3.5 billion in annual revenue in 2023, are estimated to generate revenues of $9 billion in five years.

This democratization of flexible workspaces is also enabling small to midsize space providers to cater to the needs of smaller companies that were largely devoid of premium office spaces due to high costs.

While its initial adoption was led by the top cities including Mumbai, Delhi-NCR, Kolkata,  Bengaluru, Hyderabad, Chennai, Ahmedabad and Pune, the trickling down of the concept of co-working spaces into smaller cities is opening up million-dollar opportunities.

This assumes significance as India has over 4,000 cities with only eight cities being the hub of all economic and technological developments so far and there is a concerted effort by the government and the industry to establish new engines of growth in smaller cities.

At the same time, the sector is also witnessing the inflow of international players from cities like New York and Hong Kong a testament to the sector’s attractiveness as a preferred destination for investments.

This is helping bring global best practices to the  Indian flexible office segment, thereby elevating its quality of services and further drawing the attention of investors.

Going forward, the continued rental growth in the flexible managed-working sector underscores its significant impact on the broader real estate market.

As flexible workspaces become increasingly integral to the business strategies of companies large and small, traditional office landlords are compelled to adapt.

The sustained demand for managed office solutions not only reflects shifting workplace preferences but also signals a lasting transformation in commercial real estate dynamics.

As the sector matures, its influence on urban development and property values is likely to deepen, reinforcing its role as a key driver in the future of work.

Authored by Shesh Rao Paplikar, Founder and CEO of Bhive Group

Shesh Rao Paplikar is the Founder & CEO of BHIVE Group, home to BHIVE Workspace, one of Bengaluru’s biggest managed office space providers that has offices at 26 prime locations in the city with a total of 1.8 million sq. ft in space and over 44,000 seats.

Shesh completed his BE in Computer Engineering from NITK, Surathkal, and started his first company while still a student at NITK. Later, he worked in the technology field for 11 years on Wall Street, New York before starting BHIVE in 2014.

Having worked in startups and companies of varied sizes and cultures, Shesh brings this perspective and experience from his background to provide an exceptional working experience to the clients at BHIVE.

Shesh has been instrumental in building the BHIVE Group, consisting of BHIVE Workspace and BHIVE Capital. While the Workspace wing with 26+ centers across Bengaluru makes over 250 crores annually, BHIVE Capital, the finance wing, have done 200+ crores of business in 2 years.