Startup-led growth of flex spaces

In the aftermath of the COVID-19 pandemic, it has become evident that the way businesses operate will never be the same. India is riding the crest of the entrepreneurship wave and is poised to become the world's next startup capital. The adoption of flexible workspaces that provide capital saving, speed, and flexibility is accelerated by the growing number of startups. The employees now require spaces that support their mental and emotional well-being. They look for a relaxed, vibrant, and, most importantly, non-restrictive environment—flexible workspaces offer just that and are gaining traction among startups and large organisations.

Post the pandemic, flexible spaces in commercial real estate portfolios are becoming more prominent in the long term. Once considered a niche offering, flexible workspaces have become essential to building owners and corporate occupiers' real estate strategies due to the large-scale adoption of the hybrid work model. Consequently, India's flex space stock is expected to cross 80 million sq. ft by the end of 2025 from the current stock of ~47 million sq. ft.

The 'Startup' effect

The market sentiments are favourable to startup growth, and we are witnessing a startup boom in India and worldwide. Funding during the third quarter of the calendar year 2022 hit USD 2.7 billion for the Indian startup ecosystem. The total number of unicorns in the country stands at 84 as of September 2022. Early-stage startups often are low on the requisite capital and credit rating to rent traditional office spaces, thus making flexible workspaces a preferred option. Many landlords were challenged by a new breed of office providers willing to meet the growing demand for collaborative, amenitized, managed, scalable, and flexible office spaces, driven by this change and influenced by the 'Startup' culture. For the longest time, landlords discredited the large and growing share of the office market that this sector could potentially demand. Looking back at 2019, exacerbating landlord problems and vacancies increased as businesses opted to downsize footprints – hoping to lower operational costs and meet the requirement for hybrid work.

Flexible workspaces provide Startups with the benefit of no upfront CAPEX, cost saving, operational outsourcing, data security, customisation & branding, and access to amenities they otherwise would not have had in case of their own office set-ups. This is a cost-effective solution for early-stage startups with small/variable headcounts, allowing organisations to focus on improving operations through better collaboration and productivity and channelling their time and efforts into their core business. Flex workspaces facilitate remote hiring from Tier II and Tier III cities, a hub-and-spoke model within a city, and co-working and remote-first models. Agility and flexibility will continue to be the pillars of Startups across stages, and the realty sector is all set to welcome this revolutionary change.

The perception shift

Landlords and developers, who were previously unwilling to lease space to startups due to lower business viability, now view startups differently. They have now taken action to cater to the changing market, a trend expected to drive growth in the office segment.

The increasing number of startups creates avenues for more Flexible Workspace operators and Flexible Workspace supply. An increase in hiring and technology adoption is significant in accelerating the growth of flexible workspaces.

Flexible space operators can also differentiate themselves by offering premium service offerings that reflect the segment's evolving needs, such as advanced technologies and wellness. With greater 'hybridisation' of work, there is a more anticipated investment in managed workspaces.

What's next?

Previously, startups utilized flexible spaces more often for smaller, short- to medium-term real estate capital needs, but now flexible spaces will be used more frequently in their real estate portfolios as they become more capital-conscious in the long-term and large formats. Unicorns have already begun to occupy large spaces (up to 1000 seats) in prominent tech parks across the country.

Flexible offices have been a popular and useful option for Startups to ensure resilience and growth in the face of the pandemic's volatility. Flexible working, formerly thought to be primarily an option for startups in their early stages, is increasingly being adopted by well-established businesses worldwide. Additionally, as community, networking, and workplace collaboration make up the core of startup culture, companies will increasingly select flexible spaces due to their benefits.