The Indian office market in recent years, has seen a marked shift from a supply-les market to a more occupier-driven market. The evolving occupier landscape has deepened the office market in terms of offerings with developers curating built structures to suit occupier preferences.
As the office market keeps scaling up, the demand earlier dominated by the technology sector is now diversifying to encompass occupiers for multiple sectors such as engineering and manufacturing, BFSI, healthcare, consulting and flex spaces. Demand for GCCS and domestic origin occupiers continues to witness traction and will contribute to expansion in the next 2-3 years.
According to the latest Colliers report, ‘The Multifaceted Occupier Landscape in India Office Market’ released at the RICS CRE FM Conference, while the top 6 cities will continue to drive commercial real estate, newer markets, especially Tier 2 cities, are expected to emerge as high potential growth centres. Over the next three years (2025-27), engineering & manufacturing and 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 3 years. These will together account for about 40 percent of the total office space demand. On the other hand, 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 percent of total office leasing in the next 2-3 years.
Leasing trends across key sectors
Source: Colliers
Notes: Data pertains to Grade A stock; Period before 2022 includes the average gross leasing in the previous years excluding pandemic years *Estimated leasing number used for full year 2024; Other sectors includes E-commerce, Consumables, Logistics etc
Gross leasing does not include lease renewals, pre-commitments and deals where only a letter of Intent has been signed; Top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune According to Arpit Mehrotra, Managing Director, Office Services, India, Colliers,the paradigm of office space demand in India continues to evolve rapidly, and the pace has in fact become swifter in recent years. Along with that the broadening of demand base augurs well for major office markets across the country in the long-term.
Rationalizing transaction size and growing deal volume reflects adoption of distributed work models
Post-pandemic, average deal size across sectors has rationalized and was at around 43,000 sq ft. in 2023, a 11 percent dip compared to 2019 levels. At the same time, number of deals rose by 44 percent during the same period, indicative of the shifts in occupiers’ preference and adoption of “Hub” and “Spoke” offices. The volume of flex space and engineering & manufacturing deals have particularly surged by over 70 percent in the post-pandemic period vis-a-vis the pre-pandemic era. Going forward, 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. Altogether, the office market is likely to witness an increase in mid-sized deals as compared to the growth in volume of small and large-sized deals.
Bengaluru dominates most occupier sectors, Hyderabad, Chennai and Pune gain momentum
While Bengaluru remains amongst the leading markets for Grade A office demand across sectors, cities such as Hyderabad, Chennai, and Pune are rapidly catching up and seeing heightened demand from flex spaces, BFSI and engineering & manufacturing firms. Some of the high performing micro markets such as SBD – Hyderabad have surpassed more prominent micro markets of Bengaluru in terms of office space take up by Technology sector. Other micro markets including OMR (Zone 1) in Chennai, Kharadi & Baner-Balewadi in Pune and Off SBD in Hyderabad have witnessed increased traction across key demand sectors, highlighting the evolving locational preferences of occupiers.
“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 percent. Furthermore, we anticipate healthy traction in office markets of relatively smaller cities such as Bhubaneshwar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Thiruvananthapuram etc, says Vimal Nadar, Senior Director & Head Research, Colliers India
Sectoral activity at city and micro market level
Source: Colliers
Note: Data pertains to Grade A buildings in top 6 cities- Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.
Top 3 cities and top 5 micro markets are with respect to absolute leasing numbers during 2019-2023
Micro market definitions: Bengaluru SBD 1: Koramangala, CV Raman Nagar, IRR, Indiranagar, Old Airport road, Old Madras Road, Rajajinagar and others; Outer Ring Road stretches from Silk Board to Hebbal; North Bengaluru includes Yelahanka, Hebbal, Thanisandra Roa; Whitefield: Brookfield, Whitefield and Hoodi; Electronic city includes Electronic City phase I and II, Hosur road
Hyderabad SBD: Madhapur, HITEC City, Kondapur and Rai Durg; Hyderabad Off SBD: Gachibowli, Nanakramguda, Manikonda and Kokapet Baner-Balewadi: Aundh, Baner, Bavdhan, Pashan
BFSI & Consulting firms favour premium grade A buildings in major business hubs
BFSI and consulting occupiers are likely to continue prioritizing superior-quality buildings in Central Business Districts (CBDs). Such occupiers are typically amenable towards paying a premium for marquee buildings with top-tier amenities in strategic locations or micro markets. Moreover, on account of real estate footprint optimization, Engineering & manufacturing firms typically prefer having central offices in prime locations and satellite offices in peripheral areas. On average, rentals in micro markets preferred by leading BFSI occupiers are 44 percent higher than those preferred by engineering & manufacturing firms. Technology firms, meanwhile, are more evenly spread across central, suburban, and peripheral districts. On the other hand, flex operators tend to favour Secondary Business Districts (SBDs) for their strategic location, connectivity, and developed infrastructure.
Occupiers’ priority for green-certified buildings
In pursuit of meeting their overall ESG goals, occupiers across all industries are prioritizing green-certified buildings, benefitting from tangible reduction in operational expenditures. With relatively higher adoption of sustainable elements by occupiers from Engineering & manufacturing, BFSI and technology sectors, more than three-fourths of 2024 demand is anticipated in green certified buildings.
Overall, with commercial real estate in India being increasingly defined by sustainability and quality, we anticipate multiple opportunities for developers and investors to lead in sustainability and meet evolving occupier preferences. Looking ahead, nearly 80 percent 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.
Green adoption across key occupier segments
Source: Colliers
Note: Data pertains to Grade A buildings in top 6 cities- Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.