The Soaring Demand for Flex Spaces in Engineering & Manufacturing Sectors

“Flex is the New Way of Working” - Harsh Binani (Co-Founder of India’s Largest Operator for Managed Workspaces, Smartworks) 

Harsh Binani's foresight into the flex space industry appears to be remarkably accurate because it is currently dominating the office space segment. Flex workspaces have emerged as one of the prime alternatives for MNCs, large corporates, and growing businesses to implement a decentralised work model. The post-pandemic period has been fruitful because businesses are now planning to make longer lease commitments of 3-5 years. The rise of commercial office spaces in both tier 1 & 2 cities has dispensed many opportunities for different business domains including engineering & manufacturing. In this blog, we will thoroughly demonstrate the growing trend of office leasing activities during the second quarter of 2023 backed by authentic data.  

As we proceed with the blog, we will present the facts to strengthen the fact that the trend for flexible and managed workspaces is currently dominating the office space segment and is here to stay for a long time. This blog is based on a report from Colliers that has represented the rise in the demand for flex space during Q2 2023. Below are the 3 major highlights from Q2 2023.  

Note: Q2: 1st April to 30th June of the Year 

1. Chennai Surpassed Delhi-NCR and Pune in Commercial Office Space Leasing.  

2. Engineering & Manufacturing Sectors a Surprising Three-Fold Rise. 

3. Rise in Vacancy Levels by 32% due to Tenant Exits and Surge in New Supplies.  
    

1. Chennai Surpassed Delhi-NCR and Pune in Commercial Office Space Leasing. 

Chennai, the capital city of the Indian State of Tamil Nadu, witnessed a three-fold ascent in demand during Q2 2023, led by prominent occupiers from different business domains. It won’t be incorrect to state that the second half of 2023 is starting on a promising note because Q2 has produced impressive results in the commercial real estate segment. There was gross absorption of 14.6 million sq ft across 6 prominent tier-1 cities including Chennai, Delhi-NCR, and Pune being the major contributors. While the data does not include pre-commitments, lease renewals, and deals where only a letter of intent has been signed, it shows that the occupiers are placing all their trust and confidence in flexible and managed office spaces. 
 
Chennai, Pune, and Hyderabad have gradually become the 3 most prominent cities in India for IT, E-Commerce, BFSI, and other business domains. With our expanding portfolio in these growing metropolises, we are proactively running with the trend to cater to space-related needs from different business domains. 
 

Trends in Grade-A Gross Absorption (in million sq feet) 

City	Q2 2022	Q2 2023	YoY Change in %
Pune	1.3	1.7	28%
Delhi-NCR	2.8	3.1	11%
Bengaluru	4.4	3.4	-22%
Hyderabad	1.9	1.5	-22%
Mumbai	2.8	1.6	-41%
Chennai	1.1	3.3	197%
PAN India	14.3	14.6	2%

Source: Colliers 

 

2. Engineering & Manufacturing Sectors a Surprising Three-Fold Rise.

As we said earlier, Q2 2023 has surprised many large corporates, potential occupiers, and industry leaders. The Engineering & Manufacturing sector witnessed a three-fold rise, as enterprises continued to lease large office spaces at prime commercial hubs. While the share of Technology witnessed a dip from 40 percent in 2022 to 26 percent in 2023, it remained a prominent sector in overall leasing activity. Engineering & Manufacturing and Technology sectors dominated the office leasing activities with a total of 47 percent of share during the Q2 2023. On the other hand, BFSI, Healthcare & Pharma and Flex Spaces continued to expand with 15, 4, and 17 percent during Q2 2023 which was previously recorded as 14, 2, and 11 percent respectively in Q2 2022.  
 
Businesses are adopting flex as their core strategy, resulting in a surge in demand in various cities so that they can positively implement hybrid and distributed work models. Flexible workspaces have already proved their worth and are constantly gaining higher ground across different business domains.  
 

Key Occupier Trends in Grade-A Gross Absorption (in million sq feet) 

Key Occupiers (Industries)	Total Leasing in Q2 2022 in %	Total Leasing in Q2 2023 in %
Healthcare & Pharma	2%	4%
Technology	40%	26%
Flex Space	11%	17%
Consulting	11%	9%
Engineering & Manufacturing	7%	21%
BFSI	14%	15%
Others	15%	8%

Source: Colliers 

3. Rise in Vacancy Levels by 32% due to Tenant Exits and Surge in New Supplies. 

Well, the future of the flex space industry is expected to stay on a positive edge. With 32 percent YoY growth in Q2 2023, the incline in the vacancy levels will generate more leasing opportunities for MNCs and many large & medium domestic enterprises. Chennai along with Bengaluru, Pune, and Delhi-NCR, witnessed a surge of new office supply with 136, 138, 52, and 43 percent, whereas Hyderabad and Mumbai experienced a downfall of -19 and -79 percent, respectively.  
 
As the market stabilises, the demand for flexible workspaces will rise across different cities and sectors. This means that there will be a potential escalation in office leasing by the end of the year.  

Trends in Grade-A New Supply (in million sq feet) 

City	Q2 2022	Q2 2023	YoY Change in %
Pune	0.6	0.9	52%
Delhi-NCR	1.4	2.1	43%
Bengaluru	1.6	3.8	138%
Hyderabad	3.8	3.0	-19%
Mumbai	1.0	0.2	-79%
Chennai	1.0	2.4	136%
PAN India	9.4	12.4	32%

Source: Colliers 

 

By now, you must’ve understood the fact that the concept of flex spaces is here to stay and will continue to transform with time. Considering the rise of leasing activities, one can predict that the demand for managed office spaces will continue to rise in the last two quarters of 2023. The option of customisation for occupiers has increased the corporate demand for flexible and managed workspaces. On the other hand, concepts like hot desking, IoT-enabled workspaces, and shared amenities have also driven enterprises to lease more and more of these commercial office spaces. 

Today, occupiers are striving to find the middle ground between flexibility and sustainability to utilise their resources efficiently for. As a result, increasing demand for managed office spaces is emerging as a top real estate portfolio strategy.