Flex office firms' earnings jump on strong demand, premium shift

ET Intelligence Group: The four listed companies in the flexible workspace sector including WeWork India Management, Smartworks Coworking Spaces, IndiQube Spaces and Awfis Space Solutions ended FY26 on a strong note, driven by sustained demand from global capability centres, a shift toward premium office assets, and rising adoption of managed office formats.

The companies delivered double-digit revenue growth along with margin expansion. They have guided for over 20% growth in the current fiscal year. The margin expansion is driven less by pricing and more by the maturation of centres and scale efficiencies, as fixed costs are absorbed over a larger occupancy base. Margins are expected to expand further as a rising share of centres cross maturity thresholds, strengthening operating leverage.

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Despite their stellar quarterly show, the stocks of these companies have failed to earn returns so far this year given the weakness in the broader market . However, revenue visibility and margin expansion augur well for the sector.

WeWork India's occupancy level reached a record high of 86.9%, reflecting robust demand across its portfolio, particularly from enterprise clients, which contribute about 77% of its revenue. More than half of the new demand is coming from existing clients expanding within its network. It has locked ₹1,885 crore of core revenue so far for FY27. BOB Capital Markets expects WeWork to grow at a slower pace in area expansion due to a higher base, but strong occupancy should support revenue growth and stable margins. The broker has retained a 'buy' rating on the stock with a target price of ₹765.

Smartworks has guided for 28-30% revenue growth for FY27. A high traction from enterprise clients has enabled the company to lock ₹5,200 crore of rental income or nearly 83% of the projected revenue for the year. Enterprise clients account for 90% of company's rental income. BOB Capital Markets has maintained 'buy' on stock with a target price of ₹547 given increased leasable area, improved occupancy and operating margins.

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IndiQube maintained stable occupancy levels at 88% in FY26 from 87% in FY25. The contribution of value-added services rose to 15% of revenue from 12% a year ago. However, BOB Capital Markets has downgraded stock to 'hold' and trimmed target price by 28% to ₹167 citing macro headwinds and the lack of near-term growth catalysts.

Awfis expanded Ebitda margin to 36.8% in FY26 from 33.3% in previous year, driven by higher operating leverage, premiumisation and scale. Given its elevated capex towards premium offerings and slower revenue growth, BOB Capital has pared earnings estimate by 10% over FY27-28, to factor in slower revenue trajectory and softer adjusted Ebitda. Brokerage has maintained a 'hold' rating with target price of ₹364.