March 5, 2024: A recent report by Colliers highlighted that India’s office market, with consecutive all-time leasing highs in 2022 and 2023, is expected to consolidate its positioning within the APAC region and register healthy leasing activity in 2024.
Driven by robust domestic occupier activity and resurgence in GCC demand 2024 will see a healthy demand-supply dynamics, signalling greater stability within India’s office market. Furthermore, the concept of sustainability is likely to be at the core in occupier decision making with ‘Green Leasing’ likely to make further in roads across the six major office markets of the country. However, the demand will continue to be contingent upon the numerous factors including evolving occupier needs and global economic undercurrents, according to the Colliers’ latest report, India office-repurposed to scale up, in collaboration with FICCI.
The report delineates three scenarios for 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 square foot (msf). Conversely, in a pessimistic scenario, impact of externalities will be prolonged, which may lead to leasing of around 45-50 msf, reflecting cautious decision-making. Nevertheless, in a realistic scenario, the balanced interplay between demand and supply is expected to drive improved occupancies, potentially accommodating rental upside across major office markets in the country.
Arpit Mehrotra, managing director, head of office services, Colliers India, said, “India’s office space demand is likely to breach the 50 msf mark for the third consecutive time in 2024, firmly establishing the new benchmark in commercial real estate. The office market continues to demonstrate persistent dynamism with a mix of evolving occupier needs amidst surge in domestic occupier and GCC space take-up. Domestic origin companies are likely to contribute almost half of the anticipated office space uptake in 2024. GCC activity across diverse demand segments is on the upswing too. Furthermore, recent amendments in SEZ regulations augur well for improved occupancies in such developments. Developers and institutional investors are likely to keep a close watch on regulatory aspects pertaining to office market of the country”.
Domestic enterprises to boost overall leasing activity
The report mentioned that Grade A space uptake by domestic origin occupiers has been witnessing significant momentum in recent years, with its share in total leasing rising from 34% in 2019 to almost 50% in 2023. Simultaneously, the prospect of heightened GCC leasing activity in 2024 presents a promising outlook for the overall office market in India. GCCs have already resumed their expansionary activities in India. H2 2023 specifically saw the highest GCC leasing since 2020 at 12.4 msf across the top six cities of the country. As GCCs in India evolve from pure back offices to knowledge, innovation and R&D centres across sectors, they are projected to contribute over 40% of total office demand in the coming years.
Tenant base diversification to continue and flex space market to elevate further
The report stated that the office market has undergone a significant shift in tenant composition, with sectors such as BFSI and Engineering & Manufacturing emerging as strong demand drivers. The sectors registered annual increases of 65% and 87% respectively in 2023. With subdued demand from the technology sector, demand from a diverse set of occupiers will continue to reshape the office market of India in 2024 and beyond.
As office spaces continue to get repurposed to suit evolving occupier and employee needs, the flex space market has been showcasing substantial growth in recent years. At over 45 msf, the current flex stock in India has doubled as compared to 2019 levels.
Flex spaces are anticipated to play an even more prominent role in 2024, accounting for 15-20% of Grade A office demand. This underscores the adaptability and appeal of flex spaces in accommodating evolving workplace dynamics and preferences. Within flex spaces too, the diversification of end-user base adds credibility to the resilience being demonstrated by the overall office ecosystem of the country.
Vimal Nadar, Senior Director & Head of Research, Colliers India, said, “Office space is undergoing a transformative journey marked by a multitude of trends, each signaling a promising trajectory for the year ahead. The anticipated resurgence in large-sized deals, projected to account for 50-55% of leasing activity in 2024, bodes a sense of stability in the office market of the country. Additionally, positive year-to-date gains for all three listed office REITs on benchmark indices signals optimism amidst key stakeholders of the office market. Furthermore, with sustained investments in technology and sustainable infrastructure, commercial real estate in India is primed for continued growth and innovation”.
PBDs to contribute to around one-third of office demand in 2024
The report predicted that PBDs across the top six cities may witness robust growth, buoyed by the anticipated completion of key infrastructure projects. Nearly 30-35% of Grade A office demand is likely to come from PBDs in 2024. Grade A office space completions are also likely to factor in the heightened leasing activity of PBDs. Peripheral locations are likely to witness another 50-60 msf of completions in the next two years, which will provide superior quality office space options for occupiers across diverse demand segments.
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Harini is a content management professional with over 12 years of experience. She has contributed articles for various domains, including real estate, finance, health and travel insurance and e-governance. She has in-depth experience in writing well-researched articles on property trends, infrastructure, taxation, real estate projects and related topics. A Bachelor of Science with Honours in Physics, Harini prefers reading motivational books and keeping abreast of the latest developments in the real estate sector.
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