India's Office Space Demand Set to Surge, Driven by Engineering & Manufacturing and BFSI Sectors
India's office space demand is expected to surge, driven by shifts in demand characteristics, with engineering & manufacturing and BFSI sectors leading the way. Average transaction sizes are likely to decline, with volumes expected to move upwards.
India Office Space DemandEngineering ManufacturingBfsiCommercial Real EstateSustainabilityReal Estate PuneSep 14, 2024
Over the next three years (2025-27), engineering & manufacturing along with BFSI occupiers are expected to lease about 11-12 mn sq ft of office space each on an annual basis, up from 8-9 mn sq ft each in the past three years. These will together account for about 40% of the total office space demand.
The evolving occupier landscape has deepened the office market in terms of developer offerings too. Developers are increasingly agile in curating the built structure to suit occupier preferences. Thus, the overall office market has gradually matured from a “Supply-led” market to a more “Occupier-driven” market and is likely at a turning point to see heightened growth and scaling up over the next few years.
Demand from Global Capability Centres (GCC) and domestic-origin occupiers continue to witness traction and will contribute to demand expansion in the next 2-3 years. While the top six cities of Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune will continue to drive contours of commercial real estate in India, newer markets, especially tier II cities, are expected to emerge as high potential growth centres.
Space uptake by technology firms will eventually stabilize at around 15 mn sq ft as they continue to embrace hybrid and distributed working models. Additionally, flex space occupiers are likely to expand into new geographies, accounting for 15-20% of total office leasing in the next 2-3 years.
As corporates increasingly implement decentralized work strategies, occupiers are likely to expand their offices in multiple locations with relatively smaller real estate footprint. Average transaction sizes can further decline to 35,000-40,000 in 2024 itself with volumes expected to further move upwards.
The demand scale-up will be evident at a city level also. Amongst the top six cities, Bengaluru can potentially witness annual leasing activity closer to 20 mn sq ft, while Delhi NCR and Hyderabad are expected to see office space demand in upwards of 10 mn sq ft in the next few years. Mumbai, Pune, and Chennai too are likely to witness annual demand uptick by 20-30%.
Furthermore, we anticipate healthy traction in office markets of relatively smaller cities such as Bhubaneshwar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, and Thiruvananthapuram.
Overall, with commercial real estate in India being increasingly defined by sustainability and quality, the report anticipates multiple opportunities for developers and investors to lead in sustainability and meet evolving occupier preferences. Looking ahead, nearly 80% of the 160 mn sq ft of upcoming supply over the next three years is expected to be green certified, underscoring the shift towards more sustainable real estate development.
Frequently Asked Questions
What is driving the surge in India's office space demand?
The surge in India's office space demand is driven by shifts in demand characteristics, with engineering & manufacturing and BFSI sectors leading the way.
What is the expected annual leasing activity in Bengaluru?
Bengaluru can potentially witness annual leasing activity closer to 20 mn sq ft in the next few years.
What is the expected growth in office space demand in tier II cities?
Newer markets, especially tier II cities, are expected to emerge as high potential growth centres, with healthy traction in office markets of relatively smaller cities.
What is the expected impact of sustainability on commercial real estate in India?
Commercial real estate in India is increasingly defined by sustainability and quality, with nearly 80% of the 160 mn sq ft of upcoming supply over the next three years expected to be green certified.
What is the expected impact of global economic uncertainties on India's office space demand?
Despite potential global economic uncertainties, India's policy support and sustainable growth agenda are expected to drive resilient office space demand in the long term.
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