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The post-pandemic realty cycle in India has resulted in a stark separation between the performance and investment attractiveness of the three asset classes—flexible workspaces, hotels, and commercial REITs. The improvement in demand is observed in all three segments, but investors have to consider the factors of growth potential, capital intensity, and cyclical risk before making exposure plans.

The Indian hospitality industry is still very much in the process of post-pandemic recovery and has good support from travel demand, lack of new supply and record project pipelines. Industry data are still looking good, and revenue per available room (RevPAR) is projected to increase approximately 10 per cent annually in the next two to three years, thus giving a good position for the investors in all the related real estate segments.

According to the real estate thematic report by Ambit Capitals, within this landscape, investors are increasingly favouring hotel brand owners that are expanding through asset-light models. With acquisition costs elevated and execution risks high for asset-heavy strategies, operators that focus on management contracts and franchising are better placed to scale efficiently while preserving return ratios. As a result, branded hotel companies are seen as offering superior risk-adjusted returns compared to ownership-led models.

Flex-office operators, who are also mostly asset-light, have a separate investment case. In contrast to the big hotel chains, flex players do not have a brand premium that is at least comparable, which restricts their power in setting prices and valuation multiples. On the other hand, their low capital expenditure intensity, higher service component and stronger growth trajectory are the factors that separate them from traditional commercial real estate investments.

In the current cycle, however, REITs still have somewhat limited upside. In most cases, lease escalations are usually restricted to 4-5 per cent annually, and already the sale price is indicating cap rates of 7-8 per cent (or 12-14x EV/EBITDA), making the growth prospects a bit more subdued. Thus, the investment priority in the real estate cycle, which is changing, has become very clear: first hotels, second flex offices, and lastly REITs.