Awfis' Amit Ramani Bullish on Tier II Cities for Growth in Co-Working Market

We had a strong quarter in Q2 FY25, with revenue reaching Rs 292 crore, representing a 40 per cent year-on-year growth. Our EBITDA margin improved to 34.3 per cent, a 5.5 per cent increase compared to the same period last year.

Regarding our seat expansion, we currently have 1.1 lakh seats across 18 centers in 18 cities across India. We are in the process of adding another 20,000 seats, which are in the fit-out stage, and an additional 20,000 seats are in the letter-of-intent stage. By the end of FY25, we aim to have 1.5 lakh seats across 224 centers, up from the 1.1 lakh operational seats today.

This quarter, we expanded to two new cities, bringing our total to 18 cities under our network. In terms of our premium product offerings, we continue to develop our "Elite" product. This includes our flagship "Office" project and the "Office Gold" product, which we launched three years ago. Currently, we have 15 centers in the "Office Gold" format. Our new "Elite" concept caters to the increasing demand for premium office space, particularly from multinational corporations and global capability centers. As urbanization continues, we believe there is room for three product tiers: Elite, Office Gold, and our flagship Office product.

 Read: 25% in 5 Days! Awfis Space Stock Turns Multibagger in 3 Months of Listing

We recently launched our first Elite center, which spans 35,000 square feet in Hitech City, Hyderabad. This center is designed to offer a comfortable, sustainable, and well-certified environment for our customers. This year, we plan to launch three more Elite centers in collaboration with our partner, Prestige Group, with whom we already manage nearly 600,000 square feet across 16 assets. These new Elite centers will be located in Bangalore, Mumbai, and Delhi.

Now, regarding the performance of our stock, I would like to clarify that while I won’t comment directly on stock prices, we have seen strong investor support. Our initial investors, such as ChrysCapital, Peak 15, and large family offices like Dalmia, Bharti, SRF, and Jubilee, played a crucial role in supporting us and helping us list on the stock exchange. Since then, we have attracted high-quality investors, including Nippon, Axis, Goldman Sachs, and White Oak. Their backing has helped our stock perform well, and we are proud to have delivered solid returns for our stakeholders.

Read: Awfis Space Solutions Shines Bright on Market Debut, Shares Soar 14% on NSE

I am extremely bullish on the co-working space industry, though I acknowledge I am somewhat biased being part of the sector. To put things into perspective, the current market opportunity of $108 billion is projected to grow to around $380 billion over the next four to five years. This illustrates the scale of the opportunity that exists. Last year, in FY24, the industry grew by 25 per cent, and similar growth projections are expected for this year. Looking ahead, by 2027–28, co-working spaces are expected to capture about 20 per cent of the total commercial real estate market, up from the current 10 per cent.

The industry is now well-established, with adoption across all categories of enterprises, including mid-sized corporations, SMEs, and startups. Currently, we have around 20,800 client companies using our services on a daily basis. With urbanization accelerating in India, the growth of Global Capability Centers (GCCs) in the country, and a thriving services sector, I strongly believe the best is yet to come for the co-working space industry. The growth prospects are very promising, and I remain highly optimistic about the future.

Our managed aggregation model involves partnering with landlords who typically own smaller commercial spaces (25,000 to 30,000 sq. ft.) that may be vacant or hard to lease. We offer a comprehensive solution by providing design, project management, and operational expertise to set up and manage the space while driving demand for it. 

The landlord provides most of the capital for the fit-out, and after a minimum guarantee period, we share the revenue, typically in a 65/35 or 70/30 split. This model allows us to generate higher yields—around 7-8 per cent—compared to the typical 6-7 per cent yields for commercial real estate owners in India.

Currently, 65 per cent of our portfolio operates under this model, which we've successfully implemented across 18 cities. This capital-light approach mitigates occupancy risks and churn, providing a scalable, low-risk solution that differentiates us in the market. We plan to continue expanding this model, as it has proven to deliver consistent returns for our landlord partners.

We are very bullish on Tier II cities. Our journey in these cities began in 2018 with Chandigarh, and today we are present in over 8 cities, with the latest addition being one of them. If you look at the "India stack," it's clear that while tier-1 cities account for 80-85 per cent of all commercial real estate demand, there is a growing trend in tier-2 cities as well. E-commerce, quick commerce, IT services (both global and local), and many Global Capability Centers (GCCs) are increasingly exploring these cities for talent. 

 We believe the expansion in Tier-2 cities will outpace that in Tier-1 cities, primarily because the talent pool is growing rapidly in these regions. As talent moves to tier-2 cities, the infrastructure in these areas has also improved significantly. These cities now offer great lifestyle opportunities, including better medical facilities, job growth, and overall infrastructure.

Macro factors are largely beyond anyone's control, so I wouldn't want to comment too much on them. However, when looking at the industry, it's important to note that we are in one of the most under-penetrated commercial markets in the world. Aside from occasional blips caused by macroeconomic conditions, we believe the industry will continue to grow. 

We are particularly optimistic about the co-working business, driven by the inherent demand for flexibility, speed, and quality. The rise of hybrid work models and the growing trend of work from home, combined with companies looking to establish satellite offices rather than just centralized headquarters, will continue to support demand. These factors, alongside others, will likely fuel growth in the co-working sector. Barring unforeseen macroeconomic challenges, we expect the industry to continue growing at a rate of 20–25 per cent annually.

Competition in the co-working space has been present since the beginning. Even with over 300 co-working companies, we remain one of the top five in India in terms of network size and the largest by the number of centers. We believe there are several key factors that differentiate us and will help us stay ahead:

1. Managed Aggregation Model: This model, which we have perfected across 120+ centers, allows us to be capital-light compared to our competitors. It also helps us mitigate risks associated with macroeconomic conditions, as 65 per cent of our portfolio is in partnership with landlords, with no fixed rent liabilities.

2. Network: We believe India's growth will come from both tier-1 and tier-2 cities. Having a strong network is critical, as it allows us to capture demand across multiple locations. For example, if we have a center in Vashi, we can cater to a client looking for 10 seats, but if we don’t have a presence in that location, we would miss out on business from a client seeking 500 seats in Pune.

3. Demand Ecosystem: We currently serve 20,800 client companies. Our client base is diverse—50 per cent of clients require more than 100 seats, while 43 per cent need fewer than 100 seats. In the smaller segment, we face little branded competition, making us a key player in that space.

4. Full-Service Platform: We offer end-to-end solutions, including co-working, office management, and design and build services. This full-scale platform sets us apart as a one-stop shop for commercial real estate needs.

5. Customer Focus: Our strong customer focus is reflected in our Net Promoter Score (NPS) of 70 per cent, one of the highest in the industry. With a team of 100+ hospitality professionals dedicated to delivering exceptional service, we ensure high-quality customer experiences.

These differentiators, we believe, will help us maintain our market leadership.