The fiscal year 2022-2023 proved to be a turbulent period for India’s commercial real estate sector, largely influenced by the global economic fluctuations. While the initial months held promise, the latter half was marred by the aftermath of a recession in major global economies. This environment prompted companies to be cautious about leasing extensive corporate spaces, leading to a slowdown in the growth of the commercial office segment.
Seizing Opportunities through Flexibility
Amidst the contraction of the traditional office real estate market, the burgeoning coworking sector emerged as a ray of hope. As businesses worldwide aimed to cut costs, coworking spaces thrived by offering adaptable, scalable, and high-quality solutions to companies reevaluating their strategies.
The Covid-19 pandemic significantly disrupted the conventional office work model. Despite experiencing the benefits of remote work, many individuals began to miss social interactions and collaborative environments. Simultaneously, numerous companies realized the advantages of avoiding steep permanent office rents.
The hybrid work model emerged as a practical middle ground, and flexible office spaces played a pivotal role in facilitating a resurgence of occupiers.
ANAROCK Research data indicates a notable 12% decline in conventional office leasing activity during the current fiscal year (FY23), compared to the peak year (FY20) when leasing reached 43 million sq. ft. across the top 7 cities. In FY23, leasing in these cities totaled around 36.11 million sq. ft.
Amidst the backdrop of declining conventional office leasing, coworking spaces demonstrated remarkable resilience. The share of flex office spaces in overall office activity surged to 23% in FY22-23 – a noteworthy 11% increase from the 12% share in FY20. This substantial growth marked the highest expansion rate across all office segments.
Cities Pioneering the Trend
Pune took the lead, with coworking spaces contributing to 40% of the transaction share in the ongoing fiscal year. Close behind, Bangalore witnessed a surge in net absorption of coworking office spaces, accounting for 30%. Impressively, Bangalore’s coworking spaces and the IT/ITeS industry emerged as market leaders, constituting 33% and 29% of the city’s commercial space demand respectively.
This trend extended beyond Bangalore. In Kolkata, flexible office spaces commanded a substantial share of transactions as businesses sought adaptive alternatives to fixed office expenses.
During FY23, IT/ITeS occupiers dominated the Kolkata office market, claiming a significant 36% transaction share. Similarly, coworking spaces secured a 21% share of the city’s office leasing activity, underscoring their rising popularity and demand in the City of Joy.
Envisioning the Future
The impact of the coworking sector is poised to intensify in the future, driven by the fundamental transformation work dynamics have undergone – changes that are unlikely to be reversed. The shifts in how India Inc. perceives office work in a post-pandemic era are irreversible.
Companies that rushed to return to traditional office setups now regret their decisions due to their inability to adapt. The IT/ITeS sector, in particular, has witnessed significant layoffs paralleled by notable attrition rates. Attempts to revert to the familiar ‘old normal’ have often led to adverse outcomes.
As the commercial real estate landscape reshapes, coworking spaces are set to play a pivotal role in fostering adaptability, efficiency, and growth.
