Outlook for the Flexible Workspace Sector in India

Amid changing work preferences and the expansion of nimble startups, flexible coworking spaces are forecasted to present a US$9 billion market potential in India by 2028, according to a report by Avendus Capital. This trajectory is expected to lead to sectoral growth of approximately 126 million square feet at a compound annual growth rate (CAGR) of 15 percent by 2028. These workspaces offer cost-effective options, scalable flexibility, and collaborative environments, making them the preferred choice for both multinational corporations as well as startups.

A flex workspace usually refers to a fully furnished, serviced, and managed office space offering provided by an operator to a user. Flex workspaces can generally be categorized as either coworking spaces, managed offices, or a combination of both.

The demand for flexible workspaces is being propelled by a range of sectors, including information technology (IT) and IT-enabled services (ITeS); banking, financial services, and insurance (BFSI); consulting; e-commerce; manufacturing; emerging startups; and the mushrooming growth of global captive centers (GCCs).

READ: Talent Availability in India’s Tier-2 Cities

Indian flexible workspace market

According to the Avendus Capital report, the current market size stands at approximately US$ 3.5 billion, with a total of 167,700 seats leased in flexible spaces across India. Flex space offerings encompass roughly 61 million square feet of space, accommodating over 680,000 operational seats.

Find Business Support

Build Your Asia Business with Turnkey Market Entry and Cross-Regional Support

Flex workspaces are predominantly located in urban centers, with Tier I cities hosting 49 percent of operational flex workspaces managed by medium to large-sized operators, while Tier II cities contribute around 22 percent of the total operational centers nationwide. Bengaluru leads in this trend, boasting a total availability of 20.2 million square feet of flex space. Interestingly, Pune surpasses Mumbai in the availability of flex spaces, offering 6.1 million square feet compared to Mumbai’s 5.7 million square feet.

Tier II markets have seen expansion due to multiple factors, such as location flexibility, reverse migration from major cities post-pandemic, affordability, and the presence of an untapped skilled workforce. This has prompted companies across various sectors like IT & ITeS, BFSI, and consulting to establish regional or satellite offices in Tier II cities. Many of these offices are in flexible workspace formats, typically hosting about 50 – 100 desks.

The flex workspace report identifies multiple Tier II cities as key growth markets, namely Ahmedabad, Indore, Jaipur, Lucknow, Patna, Kochi, Chandigarh, Vizag, Bhopal, Raipur, and Coimbatore.

The average cost per desk is 50 percent higher in prominent micro-markets in Tier I cities like Mumbai, Bengaluru, and Delhi NCR compared to other cities. Of them, Mumbai boasts the highest average rent per square foot per month at INR 142, compared to the national average of just INR 96.

The average vacancy rate across India stands at approximately 17.5 percent, with Kolkata recording the highest rate and Mumbai having the lowest.

Key players in the flex workspace market in India are WeWork, The Executive Centre, Regus, Simpliwork, Cowrks, Springboard, Workafella, Awfis, Smartworks, to name a few.

Find Business Support

Learn about our Location Analysis and Site Selection services ⟶

Currently, WeWork India and Smartworks are two of the largest flexible workspace providers in India. WeWork India accommodates approximately 91,000 desks within a total space of about 7.0 million square feet, while Smartworks offers around 110,000 desks within the same space. Despite this, WeWork India leads in revenue among flexible space providers, generating INR 14,228 million (US$170 million) compared to Smartworks’ INR 7,441 million (US$89 million). The Executive Center tends to offer the priciest options, with average desk pricing ranging from INR 25,000 (US$300) to INR 30,000 (US$359), followed by WeWork.  

At present, flexible workspace operators are experiencing internal rate of returns (IRRs) ranging from 30 percent to 35 percent at the center level, for both coworking and managed offices. Avendus forecasts that as the industry progresses, the returns are likely to gradually stabilize around 20 percent to 25 percent IRR levels, which would still surpass the returns offered by some other real asset classes.

Outlook for 2024-2025

1. Strong growth in Indian office market: Despite global macroeconomic and sectoral challenges, the Indian office market has shown resilience, with new office leasing remaining strong. This trend is forecasted to continue into 2024 and 2025.
2. Enterprise demand and market supply: As more enterprises embrace the work-from-anywhere policy, there is a noticeable trend towards adopting flexible and contemporary office solutions that are location-agnostic and asset light, either in peripheral Tier I business districts or in quality real estate in untapped Tier II regions. The sector has observed consistent new leasing of approximately 10 million square feet for two consecutive years in 2022 and 2023, primarily due to enterprise demand – satellite offices of MNCs, MSMEs, unicorns and startups, and GCCs. This trend is anticipated to persist in 2024 and 2025, with an expected annual sector growth of 10-12 million square feet.
3. Supply-side challenges for flex workspace operators: Amid strong demand, the primary hurdle for flex workspace operators may be securing high-quality real estate in the central business districts of top Tier I cities at favorable rental rates. Larger operators concentrating on Tier I cities are likely to enjoy early mover advantages and greater negotiating leverage.
4. Road to IPO: AWFIS is expected to become the first flexible workspace operator to initiate an IPO and be listed on the mainboard of the NSE and BSE stock exchanges. Other competitors, such as WeWork India, Smartworks, and Indiqube, are expected to outline a definite plan for their IPO and begin preparations to list their businesses over the next 2-3 yearsTop of Form
5. Consolidation and M&A activity to pick-up: Large scale operators are anticipated to expand into new micro-markets through acquisitions, allowing them to grow rapidly and establish a nationwide presence. Some well-established players might also consider exploring the OpCoPropCo (operating company/property company) structure to leverage its advantages and minimize their initial capital expenditure commitments.
6. Need for capital to support rapid growth: Many upcoming workspace operators are anticipated to enter the market and secure continuous growth funding from institutional investors. This financial support will assist operators in acquiring premium real estate and speeding up their business expansion.

• Previous Article India Hopes to Replace Minimum Wage with Living Wage Standard by 2025: What We Know
• Next Article La revolución manufacturera de la India: Estrategias y perspectivas para el éxito empresarial – Nueva publicación disponible ahora