Top Four Commercial Real Estate Companies to Watch: Co-Working Spaces Driving Growth in Indian Real Estate Market

Real Estate Investment Trusts (REITs) are becoming more popular among investors. They allow people to invest in real estate without actually owning property. Beyond traditional REITs, some smaller REITs, with a minimum capital expenditure of ₹500 million, are now focusing on specific real estate segments like co-working spaces. These spaces are important for modern work environments, serving startups, freelancers, and established businesses. Co-working spaces offer flexible leases, high occupancy rates, and good rental yields. They are especially in demand in tier 1 and tier 2 cities, making them attractive investments.

The Co-working Space Market

India’s co-working space market is growing fast. It was worth $1.94 billion in 2024 and is expected to reach $2.72 billion by 2029. Several factors contribute to this growth:

• Entrepreneurial Growth: More startups and freelancers are choosing flexible workspaces over traditional offices.
• Cost Efficiency: Co-working spaces are cheaper than setting up traditional offices, especially in prime locations.
• Flexible Work Culture: With more remote work policies, co-working spaces offer flexibility and amenities that appeal to remote workers and digital nomads.
• Networking Opportunities: Co-working spaces create communities where professionals can collaborate and network.
• Tech Infrastructure: Improved tech infrastructure supports seamless connectivity and digital operations, crucial for modern workspaces.
• Corporate Interest: Larger corporations are using co-working spaces for project teams and satellite offices.
• Government Initiatives: Programs like ‘Startup India’ and policies supporting entrepreneurship encourage the growth of co-working spaces.

Let’s look at four leading Indian companies set to benefit from the commercial real estate market’s growth.

AWFIS Space Solutions

AWFIS Space Solutions is a top workspace provider in India, offering flexible desks and customized office spaces for startups, SMEs, large corporations, and MNCs. They operate in 52 micro markets across 16 cities in India, focusing on a managed aggregation model for better returns.

From FY20 to FY24, AWFIS had a 41% annual growth rate in revenue and a 12% growth in net income. Despite increases in revenue and operating income, net profit remained elusive. As of March 31, 2024, AWFIS is debt-free with a 9% Return on Capital Employed (RoCE). The company ended FY24 with 181 centers across 17 cities, totaling 110,540 seats, with an occupancy rate of 71%.

AWFIS plans to add 40,000 new seats in FY25, reaching 135,000 seats, and aims to improve operational efficiency through a strong vendor base, technology, and employee development. They are confident in solidifying their market position and expect strong growth due to increasing customer preference for flexible spaces.

Aurum PropTech

Aurum PropTech Ltd (APTL) combines tech expertise in real estate to build and operate PropTech products, services, and platforms for various segments. APTL has two main business segments: software as a service (SaaS) and real estate as a service (RaaS).

Over the past five years, APTL has seen an 85% annual growth rate in sales, though net income has declined. The company’s average Return on Equity (RoE) is 0.5%. In FY24, revenue increased by 69% year-on-year, driven by a 78% increase in the RaaS segment and a 25% increase in the SaaS segment.

APTL aims for 45%-50% revenue growth in the next financial year and plans to improve Ebitda margins annually. They focus on product development and cost optimization, recognizing significant opportunities in the institutionalization of rental real estate in India. Management is working to reduce policy change risks and improve customer experience and operational efficiency through analytics and Customer Relationship Management (CRM).

Mindspace Business Parks REIT

Mindspace Business Parks REIT holds interests in rental-yielding commercial real estate assets, primarily Grade-A office properties, in Mumbai, Pune, Hyderabad, and Chennai, totaling 56 buildings.

From FY20 to FY24, Mindspace had an 11% annual growth rate in revenue and a 3% growth in net income. In FY24, the company saw a 7% year-on-year growth in sales and an 82.1% increase in net income. They achieved their highest-ever quarterly leasing in the March 2024 quarter, with a cumulative leasing of 3.6 million square feet for the year. The committed occupancy rate was 90.6%.

Mindspace expects increased occupancy levels and healthy leasing activity in FY25, with developments expected to generate about Rs. 8 billion in rentals over the next three to four years. They plan to designate Special Economic Zone (SEZ) spaces to boost Net Operating Income (NOI) and Distribution Per Unit (DPU) growth.

Embassy Office Parks REIT

Embassy Office Parks REIT is India’s first publicly listed REIT and Asia’s largest by area. They own, operate, and invest in income-generating real estate and related assets, providing access to real estate investment through publicly traded units. Their portfolio includes commercial office space, hospitality, and renewable energy assets.

From FY20 to FY24, sales increased by an annual growth rate of 12%, and net income grew by 4.7%. FY24 was a breakthrough year, with an 8% year-on-year increase in sales and an all-time high annual leasing total of 8.1 million square feet. They achieved their occupancy guidance, reaching 85% on a portfolio level and 87% on a same-store basis, with Bangalore at 91% occupancy and Mumbai at 99%.

In FY25, Embassy expects NOI to grow by 10% and DPU to increase by 7% year-on-year. They project total leasing to reach 5.4 million square feet, with portfolio occupancy expected at 89%. Contracted rent escalations are anticipated to be 13% on 7.7 million square feet of leases.

Conclusion

The real estate market, especially co-working spaces, is undergoing significant changes driven by increased accessibility and evolving work dynamics. With demand expected to rise by 15-20% over the next two to three years, and potentially higher if macroeconomic conditions remain stable, investors have promising opportunities.

However, since REITs and the co-working industry are relatively new in India, careful evaluation of companies is essential before investing. As these sectors grow and adapt to changing workplace preferences, strategic investment decisions will be crucial for aligning with market growth and maximizing returns.

Happy investing!