Wednesday, April 17News That Matters

Leasing to cross 50 msf in 2024 yet again, a ‘new normal’ for India office

India office holds upside potential to scale up to 60 msf in 2024

  • Domestic enterprises to account for over half of the office demand during 2024
  • GCCs to gain further ground accounting for over 40% of the total demand
  • BFSI and Engg & Mftg. to drive demand for Grade A office spaces
  • Flex spaces are likely to drive about 15-20% of the overall leasing in 2024
  • Large-sized deals of 100,000 sq ft or more, projected to account for 50-55% of 2024 leasing activity
  • About 30-35% of Grade A office demand is likely to come from PBDs in 2024

 Gurgaon, India, 05 March 2024: With consecutive all-time leasing highs in 2022 and 2023, India’s office sector has proven its resilience, and showcased consistent growth amidst global challenges. India’s office market is set to consolidate its positioning within the APAC region and register healthy leasing activity in 2024 as well.

Supported by robust domestic occupier activity and resurgence in GCC demand, 2024 appears to be a year of healthy demand-supply dynamics signaling 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 anticipated to boost occupier confidence, resulting in leasing of around 55-60 million sq ft. Conversely, in a pessimistic scenario, impact of externalities will be prolonged, which may lead to leasing of around 45-50 million sq ft, 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.

Grade A office gross leasing and new supply forecast 2024-  

Year 2022 2023 2024 (forecast scenarios)
Optimistic Realistic Pessimistic
Gross leasing (msf) 50.3 58.2 55-60 50-55 45-50
New supply (msf) 43.0 50.1 50-55 45-50 40-45

Source: Colliers

Data pertains to Grade A buildings only

 India’s office space demand is likely to breach the 50 million sq ft 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”, says Arpit Mehrotra, Managing Director, Head of Office services, Colliers India.

Domestic enterprises will bolster overall leasing activity; GCCs to gain further ground

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 highest GCC leasing since 2020 at 12.4 million sq ft across the top six cities of the country. As GCCs in India evolve from pure back offices to knowledge, innovation, and R&D centers across sectors, they are projected to contribute over 40% of total office demand in the coming years.

Domestic occupiers’ office leasing trend in msf (2019-2023)

Year Total leasing (msf) Domestic leasing (msf) Share of domestic leasing in total leasing (%)
2019 45.7 15.5 34%
2020 30.3 9.1 30%
2021 33.0 13.2 40%
2022 50.3 24.8 49%
2023 58.2 28.6 49%
2024F* 50.0-55.0 25.0-30.0 50-55%

Source: Colliers

Data pertains to Grade A buildings only

Data pertains to top 6 cities- Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune

*2024 demand forecast range is based on realistic scenario

 Tenant base diversification to continue and flex space market to elevate further

India’s 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 recorded impressive 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 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 million sq ft., the current flex stock in the country has doubled as compared to 2019 levels.

Looking ahead to 2024, flex spaces are anticipated to play an even more prominent role, 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.

Year-wise flex stock and flex stock penetration (2019-2023)-  

Year Flex stock (msf) Flex penetration (%)
2019 23.0 4.5%
2020 25.2 4.6%
2021 30.0 5.1%
2022 37.0 5.7%
2023 45.6 6.4%
2024F* 50.0-55.0 6.0-8.0%

Source: Colliers

Data pertains to Grade A buildings only

Flex penetration pertains to the share of flex stock in total Grade A office stock of the city.

*2024 demand forecast range is based on realistic scenario

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” says Vimal Nadar, Senior Director & Head of Research, Colliers India.

About one-third of the office demand is likely to come from PBDs in 2024-PBDs across the top six cities are likely to witness robust growth, buoyed by anticipated completion of key infrastructure projects. About 30-35% of Grade A office demand is likely to come from PBDs in 2024. Grade A office space completions is also likely to factor in the heightened leasing activity of PBDs. Peripheral locations are likely to witness another 50-60 million sq ft of completions in the next 2 years, which will offer superior quality office space options for occupiers across diverse demand segments.

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