Key Points

Cities such as Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai Metropolitan Region (MMR) and Pune will witness this significant growth, added the report. The report added that the sector will surpass Rs 600 billion in value by March 2027.

This segment, which has seen one successful initial public offer (IPO) in 2024, is set to witness five major IPOs in the next 12-18 months, which are projected to raise over Rs. 7,000 crore, added the report.

Giving more insight, Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said, "The flex office supply for top six cities has more than doubled to over 67 msf as of March 2024 from 32 msf as of March 2020."

"The demand for such spaces has increased at a brisk pace -driven by flexibility, short-lease tenures and lower upfront cost in terms of capex for tenants. The share of flex workspaces in the commercial office segment (non-SEZ) is expected to double to 12.5-13.5 per cent in FY2027 from 5.3 per cent in FY2020," she said.

While several flex office operators entered the space in recent years, the market remains organised with the top five players accounting for 40 per cent of the flex office space in FY2024.

Leasing activity remained strong for flex workspaces with absorption of 13 msf against supply of 14 msf in FY2024, supported by healthy demand from enterprise clients, start-ups and domestic corporates.

This trend reduced the vacancy levels by 300 bps to 17 per cent as of March 2024 from 20 per cent as of March 2023.

Despite the influx of a huge supply of 17-19 msf in the flex workspace each from FY2025 to FY2027, ICRA expects vacancy to remain range-bound at 16.5-17 per cent by March 2025 and improve to 15.5-16.5 per cent by March 2026 and March 2027.

The business model of flex workspaces in India started in 2017. During 2018 and 2019, many operators aggressively launched new centres as flex workspaces became popular with start-ups and small and medium enterprises (SMEs) and became established proof of concept.

However, with the onset of the Covid-19 pandemic, flex operators were among the worst hit with significant decline in occupancies due to large exposure to retail tenants and implementation of workfrom-home policies.

Post pandemic, the rise of hybrid work models and desire for diverse work settings saw a significant revival of the flex segment in 2023 and 2024. As of December 2024, there are over 450 flex operators in India with more than 2,000 unique centre locations.

The top five players account for 40 per cent of the total flex supply. Bengaluru has the highest supply of both commercial office and flexible workspace markets in India, accounting for 32 per cent of the total flexible workspace supply across the top six cities.

- ANI