Avendus Capital's report forecasts a significant expansion in India's flex workspace market, with projections indicating a tripling of its value to $9 billion by 2028. The report predicts a doubling of the stock size to 126 million sq ft by the same year, growing at a robust CAGR of 15%.Read complete report on SURFACES REPORTER (SR):
Sectors such as IT & ITeS, BFSI, consulting, e-commerce, manufacturing, and startups are identified as driving demand for flex workspaces. Additionally, the influx of global captive centers (GCCs) contributes to this demand.
The growth in flex workspaces is expected to attract various categories of investors including growth capital, private equity, real estate investors, HNIs, family offices, venture debt, and structured credit.
Enterprises opting for flex workspaces can save around 15%-20% compared to traditional leasing, which is a significant factor driving adoption.
Prateek Jhawar, Managing Director and Head, Infrastructure and Real Assets Investment Banking, Avendus Capital commented, “The Indian office market has remained largely immune to global macro & sectoral headwinds. As more enterprises explore the remote workplace policy, we are seeing a broad shift towards flexible and modern office solutions. With demand being robust, the biggest challenge for flex workspace operators could turn out to be locking-in quality real estate supply in the central business districts of the top 7 cities at favourable rents. We expect at least 4 mature players to list in the next 2-3 years."
Remote Workplace Policy
The shift towards remote work policies among enterprises is driving the growth of flex workspaces as companies embrace location-agnostic and asset-light real estate strategies.
Challenges and Opportunities for Operators
While demand for flex workspaces is robust, securing quality real estate supply in prime locations at favorable rents is identified as a key challenge for operators. However, there are opportunities for mature players to list in the next 2-3 years.
While there is high penetration of flex workspaces in major cities, there's potential for pan-India expansion as demand rises across various office markets at different price points. This includes large enterprises seeking satellite offices and MSMEs, unicorns, and startups opting for cost-effective solutions in peripheral business districts.
Financial Performance
Currently, flex workspace operators are experiencing stable-state IRRs of 30%-35%, which are expected to gradually stabilize towards 20%-25% as the industry matures.
Operators of scale are anticipated to pursue inorganic opportunities to enter new markets, scale up rapidly, and establish a pan-India presence. Institutional investors are expected to provide patient growth capital to support this expansion.
This report is part of a series of thought leadership pieces from Avendus on emerging real asset derivatives, including flex workspaces, co-living, student housing, education infrastructure, and life science assets, among others.
Image is for representation purpose only.