The office market in India has continued its upward trajectory, registering a higher space uptake in successive quarters of 2024. Annual gross leasing across the top six cities already reached 47.0 million sq feet by the third quarter of the ongoing year, reflecting a 23% year-on-year increase. Bengaluru and Hyderabad remained dominant markets, driving almost half of the leasing activity between January and September. At India level, 2024 is likely to see Grade A absorption breach 60 million sq feet for the first time in the office market of the country.
Although demand from tech occupiers has relatively stabilized, it will continue to drive one-fourth of the overall leasing. On the other hand, flex space demand is set to surge and can potentially account for one-fifth of the total demand across the top six cities in 2024.
Similar to demand, the 37.4 million sq feet of completions during the first three quarters of 2024 were led by Bengaluru and Hyderabad. Overall, new supply is also likely to follow demand and surpass the 50 million sq feet mark in 2024. Vacancy levels at the end of 2024 will remain rangebound. Rentals, meanwhile, are expected to show a 5-10% annual growth across most cities.
2025 outlook: A year of market solidification and growth
India’s office market, driven by shifts in demand characteristics, will solidify in 2025 and build upon its impressive performance in 2024. The need for managed office spaces amidst evolving business requirements, flexible lease terms and cost arbitrage will continue to fuel adoption of ‘Core + flex’ model in commercial office real estate.
Strong domestic growth prospects and a positive economic outlook will keep occupier as well as developer confidence intact. Overall supply is likely to follow the demand trajectory. This is likely to further firm up rentals. Moreover, as demand in Indian commercial office real estate solidifies, notwithstanding unforeseen events, annual space take up to the tune of 60 million sq feet is likely to be the new norm in the next few years.
- Demand base to broaden further with BFSI and Engg. & Mftg, as front runners: In the upcoming year, engineering & manufacturing and BFSI occupiers are expected to together account for about 35-40% of the total office space demand. On the other hand, space uptake by technology firms will eventually stabilize and drive about 25-30% of the total demand as they continue to embrace hybrid and distributed working models.
- GCC demand likely to be on an upswing: GCCs are expected to continue to play a pivotal role in driving the demand for Grade A office space in India, accounting for 40-50% of the leasing activity in 2025. Akin to the recent Karnataka GCC policy, focused policies can be put into motion by various state governments. As GCCs continue to scale-up their India offerings, their need for modern, high-quality office spaces will continue to witness traction over the next few years. Smaller cities like Mysuru, Mangaluru, Hubli and Dharwad can complement the GCC activity of established centers such as Bengaluru in the long term.
- Increasing space rationalization: Going forward, as corporates increasingly implement decentralized work strategies, occupiers are likely to expand their offices in multiple locations with relatively smaller real estate footprints. Average deal size across sectors post-pandemic has rationalized at around 43,000 sq feet in 2023, an 11% dip compared to 2019 levels. At the same time, number of deals rose by 43% during the same period. Across Tier-I cities, we can expect heightened traction in mid-sized deals (50,000-99,999 sq feet). Although average transaction sizes can further rationalize below 40,000 sq feet in 2025, overall volumes in mid-sized deals can increase and contribute close to one-fifth of the Grade-A office space demand.
- Rising activity in Tier-II & III Cities: Corporate India is increasingly open towards operating beyond traditional commercial hubs. Cities like Bhubaneswar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Thiruvananthapuram etc. are likely to witness a significant influx of businesses, driven by factors such as lower operating costs, equally strong availability of skilled talent and infrastructure upgrades. This shift is likely to result in a significant demand surge across these smaller cities in 2025. Most of the Tier-II & III cities are likely to witness healthy annual growth in Grade A leasing activity. Additionally, taking demand cues, leading commercial developers are likely to increasingly foray into these markets with Grade A developments.
- Flex spaces growth to continue: As flex spaces continue to transform from niche to mainstream, they are likely to increasingly define the contours of Grade A office spaces in India. Reimagination of workplace, changing perceptions and enterprise-level offerings will continue to drive heightened flex adoption in 2025. Share of leasing by flex space operators is likely to be at around 20% of the overall office demand in the upcoming year. Leading flex space operators will continue to expand their portfolios across Tier-II & III cities with an increasing number of players likely to explore asset-heavy models and acquire select commercial properties instead of leasing them from developers.
- Green certified buildings at the forefront: With a growing emphasis on sustainability, most new office developments in India are incorporating green building practices. LEED and GRIHA-certified buildings are becoming the norm, driven by operational efficacy and compliance pressures. Looking ahead, nearly 80% of the supply pipeline over the next 2-3 years is expected to be green-certified, underscoring the shift towards more sustainable real estate development. About 95-110 million sq feet of existing office stock (≤10 years old) hold the potential for getting E-compliant with minimal capex over the next few years.
