India’s flexible, co-working office supply to hit 125 million sq. ft. by 2027, report

India's flexible office space market is projected to expand to 125 million sq. ft by March 2027, up from 80 million sq. ft in December 2024, according to ratings agency ICRA. This growth reflects a compound annual growth rate (CAGR) of 21-22% from FY25 to FY27. The segment, which has seen one initial public offer (IPO) in 2024, is set to witness five major IPOs in the next 12-18 months, projected to raise over Rs. 7,000 crore (US$ 826 million). The demand for flexible spaces has increased rapidly, driven by the need for flexibility, short-term leases, and lower upfront costs for tenants. The share of flex workspaces in the commercial office segment (non-SEZ) is expected to double to 12.5-13.5% in FY27 from 5.3% in FY20. Leasing activity remained strong in FY24, with 13 million sq. ft. absorption against a supply of 14 million sq. ft, supported by demand from enterprise clients, start-ups, and domestic corporates. This trend reduced vacancy levels by 300 basis points to 17% as of March 2024 from 20% as of March 2023. Despite the influx of a huge supply of 17-19 million sq. ft in the flex workspace each from FY25 to FY27, ICRA expects vacancy to remain range-bound at 16.5-17% by March 2025 and improve to 15.5-16.5% by March 2026 and March 2027. The business model of flex workspaces in India began in 2017, with many operators launching new centres in 2018 and 2019, as flex workspaces became popular with start-ups and small and medium enterprises (SMEs). The COVID-19 pandemic significantly impacted flex operators, decreasing occupancies due to exposure to retail tenants and work-from-home policies. However, the rise of hybrid work models and the desire for diverse work settings saw a revival of the flex segment in 2023 and 2024.