Flex-space market to reach 126 mn sq ft by 2028

28 Mar 2024 CW Team

The demand for flexible workspaces is being primarily propelled by sectors such as IT & ITeS, BFSI, consulting, e-commerce, manufacturing, and new-age startups, alongside the continual establishment of global captive centres (GCCs).

It is stated that opting for space from a flexible workspace operator could result in cost savings ranging from 15% to 20% for the occupier compared to traditional leasing.

Prateek Jhawar, managing director and head of Infrastructure and Real Assets Investment Banking at the company, mentioned that the Indian office market has largely remained unaffected by global macroeconomic and sectoral challenges. He noted that with an increasing number of enterprises embracing remote workplace policies, there is a notable shift towards flexible and contemporary office solutions. He further added that despite robust demand, the primary challenge for flex workspace operators could revolve around securing quality real estate supply in the central business districts of the top 7 cities at favorable rents. Jhawar also expressed an expectation for at least four established players to go public in the next 2-3 years. Moreover, it was highlighted that the average per desk cost in prominent micro-markets of Tier I metro cities like Mumbai, Bengaluru, and Delhi NCR exceeds those in prominent micro-markets of other cities by over 50%.

Presently, flex workspace operators are witnessing stable-state, centre-level Internal Rate of Returns (IRRs) ranging from 30% to 35% in both co-working and managed offices. However, as the industry matures, it is anticipated that the returns profile will gradually stabilise towards IRR levels of 20% to 25%, which still surpasses the returns provided by some other real asset classes.

According to a report by Avendus Capital, an investment bank for private equity advisory, it is anticipated that India's commercial real estate market will experience robust demand, leading to an increase of approximately 126 million sq ft at a Compound Annual Growth Rate (CAGR) of 15%, thereby tapping into a market worth USD 9 billion by 2028. The demand for flexible workspaces is being primarily propelled by sectors such as IT & ITeS, BFSI, consulting, e-commerce, manufacturing, and new-age startups, alongside the continual establishment of global captive centres (GCCs). It is stated that opting for space from a flexible workspace operator could result in cost savings ranging from 15% to 20% for the occupier compared to traditional leasing. Prateek Jhawar, managing director and head of Infrastructure and Real Assets Investment Banking at the company, mentioned that the Indian office market has largely remained unaffected by global macroeconomic and sectoral challenges. He noted that with an increasing number of enterprises embracing remote workplace policies, there is a notable shift towards flexible and contemporary office solutions. He further added that despite robust demand, the primary challenge for flex workspace operators could revolve around securing quality real estate supply in the central business districts of the top 7 cities at favorable rents. Jhawar also expressed an expectation for at least four established players to go public in the next 2-3 years. Moreover, it was highlighted that the average per desk cost in prominent micro-markets of Tier I metro cities like Mumbai, Bengaluru, and Delhi NCR exceeds those in prominent micro-markets of other cities by over 50%. Presently, flex workspace operators are witnessing stable-state, centre-level Internal Rate of Returns (IRRs) ranging from 30% to 35% in both co-working and managed offices. However, as the industry matures, it is anticipated that the returns profile will gradually stabilise towards IRR levels of 20% to 25%, which still surpasses the returns provided by some other real asset classes.