Domestic Companies Drive Office Leasing

As BFSI and technology firms, besides flexible space companies emerge as the major occupiers of office space, in the changing leasing landscape, domestic companies are driving office leasing, challenging the domination of global companies.

According to a CBRE Report, ‘ India Inc’s Ascention – The Rise of Domestic Firms as an Office Demand Driver’, with a transformative shift in India’s office leasing , domestic firms have broken the monopoly of global corporations. In the present trend, domestic firms have emerged as the main demand drivers. According to the data, nearly 47 percent of overall office leasing activity between 2022 and H1 2024 , is attributed to Indian companies which are expected to lease 60- 65 million sq ft office space between 2024-2025. 

During 2022-2023, domestic firms witnessed a significant 60% increase in office space absorption compared to the two pre-pandemic years of 2018-2019.

Further, major occupier groups acquired substantial spaces in prime locations

across key cities, with Delhi-NCR leading the way, followed by Bengaluru and Mumbai. Cities like Bengaluru and Hyderabad saw increased occupancy by e-commerce and life sciences firms, respectively, reflecting their strong growth trajectories. Further, Mumbai emerged prominently with a 43% share of domestic BFSI leasing, bolstered by substantial contributions from Delhi-NCR and Chennai during 2018 – H1 2024. Additionally, domestic technology firms have been expanding their office footprints to meet the rising demand for tech-driven solutions. 

The remarkable growth in India’s office market is supported by various factors, including government initiatives like the ‘Make in India’ programme and the Production Linked Incentive (PLI) Scheme, increased profitability and a well-capitalized banking sector. Proactive steps taken to scale domestic manufacturing capability, accompanied by higher import substitution and employment generation, are fostering a thriving & sustainable business environment. Besides, factors like low corporate leverage ratios and improved access to capital are enabling substantial expansion in investment capacity, providing a launchpad for Indian companies to expand. Additionally,a burgeoning start-up ecosystem featuring over 100 unicorns and more than 100,000 start-ups is further fuelling the growth.  

Region-wise office absorption trend in

In recent years, the office leasing landscape in India has been predominantly driven by three key sectors: flexible space operators, BFSI (banking, financial services, and insurance), and technology firms, which have collectively accounted for two-thirds of all domestic office leasing activity.

This trend is expected to persist as these sectors continue to drive significant demand for office space. The RCA (research, consulting and analytics) sector with services spanning across legal, taxation, HR, media among others is also driving domestic leasing. Meanwhile, Indian engineering and manufacturing firms, which currently represent 7-8% of domestic office leasing, are anticipated to expand their footprint, into Tier-II and Tier-III cities that are emerging as new manufacturing hubs. Similarly, homegrown retail and FMCG companies, currently accounting for 1-2% of domestic office leasing, are expected to increase their office space requirements as they expand operations and scale their workforce to support long-term growth strategies. 

 According to Anshuman Magazine , Chairman & CEO, India, SEA, MEA, CBRE , domestic firms are demonstrating a strong commitment to growth and expansion, which is set to drive substantial office space absorption in the coming years.As India’s major urban centers continue to grow and diversify, the demand for premium office spaces will shape the future of the commercial real estate market, setting new standards for innovation and excellence. India’s top nine cities are poised to see an impressive addition of ~185 million sq. ft. of premium office space by 2026.

  Ram Chandani, Managing Director, Advisory & Transaction Services, CBRE India, expects significant expansion in  office space across top cities over the next three years.as the surge in workforce needs, driven by digitalization, evolving workplace strategies, and enhanced business confidence, has substantially boosted leasing activity.  

Outlook 2024:

• The Indian tech workforce would continue to be vital in spearheading global technology offerings across sectors. After a few quarters of slow headcount growth, Indian IT majors are set to increase their workforce from the latter part of 2024, as they continue to focus on innovation.
• By 2025, the Indian analytics industry is projected to reach USD 16 billion, potentially capturing 32% of the global marketing.
• About 86% of the domestic occupiers would pursue ‘flight-to-quality’ leasing over the next two years, spawning the need for such quality spaces.

• About 57% of the domestic firms intend to use flexible spaces over the next two years. This provides an impetus for flexible space operators to further expand their reach. The flexible space stock is expected to touch 80 million sq. ft. in 2024.

• About 78% of the domestic occupiers are looking to expand their portfolio by 10% or more in the next two years. CBRE expects leasing by domestic firms to be in the range of 60-65 million sq. ft. between 2024-2025.

• While AI-enabled automation presents the risk of job displacement in certain sectors, it is simultaneously creating a wave of new opportunities. This underscores the importance of workforce reskilling and adaptation to thrive in the evolving job market. The rise of emerging technologies is set to create 4.7 million tech jobs over the next five years across manufacturing, retail, education, finance, and insurance sectors.

• Banks are likely to continue taking up office spaces across metro and Tier-II cities to augment their technology-integrated services, sales and customer support teams. At the same time, neo banks, financial services firms and insurance companies continue to tap into the country’s growing financially literate population.

• Led by the government’s increased thrust on the manufacturing sector, including tax reforms, regulatory streamlining and enablers such as Make in India, PLI schemes, certain sectors would see continued growth, thereby raising their office space uptake. Overall, the manufacturing sector is set to create about 11 million jobs by 2030, and we expect some portion of that to be created for office-based jobs revolving around automation and R&D

• The country’s organic growth in electronics consumption, coupled with the government’s ambitious target of achieving USD 300 billion worth of domestic electronics manufacturing by 2025-2030, present a unique opportunity for firms.