India records office space absorption of 34.8 msf in H1 2023: Report

July 9, 2024: Office space absorption in India’s six major cities reached a record high of 34.8 million square foot (msf) in the first half (H1) of 2024, according to a report by real estate advisor Savills India. This marks the strongest H1 ever recorded, representing a significant 29% increase compared to H1 2023.

Meanwhile, new office space supply witnessed a sharp decline of 32% year-over-year (YoY), with only 17.4 msf completed in H1 2024. This limited supply, coupled with increased transaction activity, led to a decrease in the overall vacancy rate. By the end of June, the vacancy rate had dropped to 15.9%, down from 18% in the previous year.

Naveen Nandwani, MD, commercial advisory and transactions, Savills India, said, “India’s office market saw record-high absorption in the first half of 2024, indicating positive business sentiment among occupiers. The return of employees to physical offices has spurred office demand across all occupier segments, including tech. The demand momentum is expected to continue through the second half, with the year anticipated to see new record absorption levels of 65-66 msf in 2024. We expect strong leasing activity from the tech, BFSI, flexible workspace and manufacturing sectors.”

Looking ahead, Savills India anticipates record-breaking absorption levels for the full year, reaching approximately 65-66 msf. This would be the highest annual total ever recorded. However, new supply is expected to lag behind demand, potentially leading to an intensified competition for high-quality office spaces.

Leasing activity in Q2 2024 reached 17.2 msf, reflecting a slight decrease of 2% compared to the previous quarter. However, new office space supply surged by 64% quarter-on-quarter (QoQ) to 10.8 msf.

The technology sector led the leasing activity, taking up 39.3% of the total space absorbed. The banking, financial services, and insurance (BFSI) sector followed at 16.9%, and flexible workspaces captured 13.9%. Leasing by the tech sector grew significantly by 61% YoY, and the BFSI sector saw a 51% increase. However, the flexible workspace segment experienced a 16% decline in space take-up. Large deals (over 1,00,000 square foot) remained dominant in overall leasing activity this quarter, contributing 43.5% of all transactions.

Bangalore maintained its position as the top contributor to national leasing activity in H1 2024, accounting for 28% of the market. Mumbai and Hyderabad followed closely behind with shares of 18% and 16%, respectively. Mumbai’s office market has shown a remarkable revival since the second half (H2) of 2023, with significant growth. Mumbai stands out as the only city to witness a YoY increase in new office space supply during the first half of 2024. All other cities saw a decrease in new supply compared to the same period last year

City-wise key trends

• Mumbai: Gained market share to become the second-largest market in terms of total leased space (gross absorption). The financial services sector (BFSI) remained the dominant driver of demand (35%), followed by technology (tech) at 17%. Notably, smaller deals (less than 25,000 sqft.) accounted for the largest share (39%), followed by mid-sized deals (25,000-99,999 sqft) at 36%.

• Hyderabad: Maintained its position among the top 3 cities for office leasing. Large deals constituted a significant portion (62%) of the total absorption. The tech and healthcare and pharmaceutical sectors were the leading demand drivers (31% and 25% respectively), followed by flexible workspace providers and tech companies (18%).

• Pune: Witnessed a remarkable 37% YoY increase in gross absorption, securing the fourth position. This growth was primarily driven by increased space take-up by BFSI, IT-BPM, and engineering and manufacturing sectors.

• Chennai: Experienced a slight decline (3% YoY) in leasing activity, with a total absorption of 4.4 msf. Tech companies were the primary driver (50%), followed by BFSI (15%).

• Delhi-NCR: The tech sector, previously the main contributor to leasing activity, has been overtaken by the flexible workspace segment, which now holds a 32% share of gross absorption. Mid-sized deals (25,000-99,999 sqft) dominated the leasing activity in H1 2024.