India’s office sector has remained resilient and witnessed consecutive all-time leasing highs in 2022 and 2023. This growth has allowed India’s office market to consolidate its positioning within the APAC region. Moving forward, 2024 is expected to bring in healthy demand-supply dynamics, showcasing greater stability within India’s office market.
The Rise of Green Leasing
Sustainability is becoming increasingly important in occupier decision-making, with “Green Leasing” gaining traction across the six major office markets in India. Occupiers are considering environmental factors when choosing office spaces, emphasizing the need for sustainable practices in real estate. According to Colliers’ latest report, there are three scenarios for the office demand forecast: optimistic, realistic, and pessimistic. In an optimistic outlook, economic momentum is expected to boost occupier confidence, resulting in leasing of around 55-60 million sq ft. In a pessimistic scenario, external factors might have a prolonged impact on the market, leading to leasing of around 45-50 million sq ft. However, in a realistic scenario, a balanced interplay between demand and supply is anticipated, driving improved occupancies and potentially accommodating rental upside across major office markets in the country.
India’s Office Space Demand Sets New Benchmark
India’s office space demand is set to breach the 50 million sq ft mark for the third consecutive time in 2024, establishing a new benchmark in commercial real estate. The office market continues to show dynamism with evolving occupier needs. Domestic companies are expected to contribute almost half of the anticipated office space uptake in 2024, with GCC (Gulf Cooperation Council) activity also on the rise. Recent amendments in SEZ (Special Economic Zone) regulations further boost the outlook for improved occupancies in these developments. Developers and institutional investors are closely monitoring regulatory aspects affecting the office market in India.
Changing Tenant Composition and Demand Drivers
The tenant composition in India’s office market has undergone significant changes, with sectors like BFSI (Banking, Financial Services, and Insurance) and Engineering & Manufacturing emerging as strong demand drivers. These sectors showcased impressive annual increases of 65% and 87% respectively in 2023. While the demand from the Technology sector has been subdued, a diverse set of occupiers is reshaping the Indian office market in 2024 and beyond.
Evolution of Flex Spaces
Flex spaces, which cater to evolving workplace dynamics and preferences, have been experiencing substantial growth in recent years. The current flex stock in India has doubled compared to 2019 levels, reaching over 45 million sq ft. In 2024, flex spaces are anticipated to play an even more prominent role, comprising 15-20% of Grade A office demand. This showcases the adaptability and appeal of flex spaces in the current work environment.
The Stability of Large-Sized Deals and Positive Market Sentiment
Resurgence in large-sized deals is expected to account for 50-55% of leasing activity in 2024, signifying stability in the office market of India. Additionally, all three listed office Real Estate Investment Trusts (REITs) on benchmark indices have shown positive gains throughout the year, indicating an optimistic sentiment among key stakeholders.
PBD Growth and Infrastructure Projects
Primary Business Districts (PBDs) across the top six cities in India are likely to experience robust growth in 2024, fueled by the completion of key infrastructure projects. Around 30-35% of Grade A office demand is expected to come from PBDs. Completions of Grade A office spaces in peripheral locations are projected to reach 50-60 million sq ft in the next two years, providing quality office space options for diverse demand segments. The commercial real estate sector in India is witnessing continued growth and innovation, supported by investments in technology and sustainable infrastructure. This positions India’s office market for further success in the coming years.
