Going Public Can Propel Managed Office Space Firms to New Heights

New Delhi / September 3, 2024: 

By Shesh Rao Paplikar, Founder & CEO, BHIVE Group

Built on the premise of empowering emerging companies with easy access to state-of-the-art premium office spaces, managed office spaces are rapidly becoming the preferred option for companies in order to keep fixed costs low while having the agility of change requirements based on business performance. Over the years, their adoption witnessed a significant surge among companies of all sizes and established their presence as the fastest growing segment of commercial real estate.

Industry reports suggest that co-working and managed workspaces are expected to grow their capacity in the next 12-24 months led by a surge in demand from startups, global capability centres (GCCs), information technology and information technology-enabled service (IT/ITeS) companies.

This robust demand is expected to grow the flexible (flex) workspace market to 126 million square feet by 2028 from 61 million square feet in 2023, according to a report by private equity advisory firm Avendus.

Led by these growth pillars, managed office space providers have started tapping the capital markets as a natural progression towards becoming a trusted and committed corporate citizen. This move is opening up billion dollar opportunities for the sector which will provide easy access to raising capital, reduce debt, fund merger and acquisition transactions while attracting and retaining talent as a public company.

Easy financing to drive expansion

Having democratised the office space segment in the top metros, there are hundreds of smaller cities in India which are emerging as the new growth centres and witnessing the mushrooming of startups, thereby ushering in the need for organised office spaces. This would need significant investments from managed office space providers to expand in smaller cities which can be fulfilled by tapping the capital markets. Avendus’ report states that around 250 flex workspace operators, with $3.5 billion in annual revenues in 2023, are estimated to generate revenues of $9 billion in five years, revealing a close knit relationship between revenue growth and market expansion.

While organic growth will continue to occur, merger and acquisitions are vital to capturing a market in an organic manner which necessitates huge investments by managed workspace providers. A publicly-listed company can raise funds for mergers and acquisitions (M&A) through a combination of equity financing and equity. While both equity sale and debt route can be taken as a privately held company, the valuations and trust are higher in case of a publicly listed company and institutional, retail investors as well as banks exhibit much more confidence while investing.

IPO listing to pare debt propels rapid growth

One of the most optimum ways of propelling growth for companies is to reduce debt and managed workspace providers can tap the capital markets through an initial public offering (IPO) or to make subsequent share offerings in order to reduce interest costs and improve cash flow and their debt to equity ratio. These steps become significantly easier in case of a listed company which also ensures minimal risks for investors as the improved fiscal situation reflects positively on the stock values.

These initiatives also help build a corporate identity for a company as they are more recognisable and gain the attention of potential customers and new strategic partners, thereby enhancing trust in the organisation. This comes on the back of mandatory disclosures including financial statements and all major developments related to the company, publicly. There is also a sustained growth in valuation privately as against a privately held one as parameters such as market capitalisation, enterprise value, cash flow and others can be accurately measured based on the publicly available financial information. Private companies, on the other hand, have limited information available publicly, making it difficult to assess their performance for retail investors.

Over the next decade as managed workspaces become synonymous with office spaces in India, the capital markets are going to be the biggest driver of its growth and retail investors are going to reap significant yields out of their investments. This assumes significance as there was always a glass ceiling for retail investors when it came to investing in commercial real estate as it required huge upfront capital and market expertise. The entry of commercial real estate in the capital markets by way of Real Estate Investment Trusts (REITs) have made it easier for retail investors to participate in the growth story. This makes the journey easier for managed workspace providers who are more recognisable by retail investors owing to their vibrant marketing outreach. 

In conclusion, it would be safe to say that managed workspace providers would have the shortest public listing journey led by the rapid growth they are witnessing while building trust from all stakeholders including occupiers, retail and institutional investors.