India’s democratisation wave is revolutionising industries and customer experience – from e-commerce to transportation and food delivery to quick commerce. However, the emergence of flexible workspaces has been one of the most disruptive forces which have truly empowered the uprising of this new-age ecosystem in the country. Even more interesting is that the flexible workspace industry has covered the journey of germination, growth and maturity in a little over two decades, a unique testament to its future growth potential.
International real estate consultant CBRE states that India Inc. is increasingly embracing flexibility, spurring demand for flexible coworking space with the current trend expected to boost the share of companies allocating over 10% of their office portfolio to flexible workspaces to 58% by 2026 from 42% in the March quarter this year. These growth numbers are also reflective of the growth of the flexible workspace segment, which is expected to scale up to become a nearly 126 million square feet market by 2028, from about 61 million square feet in 2023, growing at a compounded annual growth rate (CAGR) of approximately 15% over the next five years.
This is attracting significant interest from new flexible workspace providers, developers and investors to tap into the market, which is expected to touch $9.0 Billion by 2028, growing at a CAGR of nearly 21% from $3.5 Bn currently, says Avendus. With the evolving regulations making it more accessible, affordable and seamless for retail investors to tap into this high-growth segment, an increasing number of flex space providers will be knocking on the doors of capital markets by 2025
Flex is Good for Business
Till two decades ago, commercial real estate used to be solely the domain of large technology enterprises, which necessitated high upfront investments and a lack of agile agreements. This created a glass barrier for small to medium-sized businesses which couldn’t access the Grade A office spaces. This invisible barrier was broken by flexible workspaces, which enabled businesses of all sizes to operate out of premium workspaces with a range of services available in a no-frills manner, resulting in significant cost savings. Today, companies across segments opt for flexible workspaces – IT & ITeS to Global Captive Centres, startups to MSMEs, leading to a healthy surge in rentals across the top cities.
Real estate consultant Anarock Group Mumbai, in its March report, highlighted how Mumbai witnessed the highest rise in rentals of flexible workspaces by 27% over the past four years, followed by Grurgram, New Delhi, Bengaluru and Noida with 19%,18% 15% and 14% respectively. The average monthly rental per flexi space seat in Mumbai jumped to Rs 15,900 in FY 2024 compared to ₹12,500 per seat back in FY 2020, highlighting the rapid uptick in space absorption.
Industry reports suggest that flex space operators are experiencing an internal rate of returns (IRRs) ranging from 30% to 35% at the centre level for both coworking and managed spaces. These factors enhance the cash flow of flexible workspaces, empowering them to invest significantly in setting up more state-of-the-art facilities.
Creating A Shared Value For Everyone
The listing of flexible workspace providers on the capital markets suggests a significant turnaround in the masses’ approach towards this once-niche segment in creating a shared value for stakeholders. While the sector started gaining traction from institutional investors over the last few years, the bumper initial public offering (IPO) of a recent few and the expected IPOs of upcoming flex space providers reflect the growing acceptability of masses towards the newest commercial real estate segment.
This assumes significance as retail investors have typically shied away from tapping into the commercial real estate segment due to a lack of market expertise and soaring investment requirements. The listing of income-generating commercial real estate assets, which are considered one of the most stable investment instruments in the form of flexible workspaces, is empowering retail investors to generate high yields on their investments. This is also helping build trust in the sector as the capital markets ensure strict auditing and scrutiny of various aspects by the Securities and Exchange Board of India (Sebi).
Over the next one to two years, as several companies list on the capital markets, it’s a once-in-a-lifetime opportunity for retail and institutional investors to venture early into one of the fastest-growing stocks and reap great returns. The growing trust in the sector will further strengthen its appeal among all investors and help establish a robust industry to power the growth of India’s new-age economy.
