Office Market Boom: A New Era for Commercial Real Estate in India

Indian office market is experiencing an unprecedented growth and this phase has been termed as a purple patch for the real estate segment by industry experts. The positive sentiment for commercial real estate sector continued in its momentum with major property research firms like Knight Frank and Anarock predicting that numbers related to office space transactions would touch the roof by 2024, which is an indication not just of bouncing back from post-COVID era but reflecting growth too. For 2024, the office space transactions are likely to see a new high of stronger over 70 million sq ft (MSF) against previous peak level of about 60.6 MSF in year 2019 as per Knight Frank data.

Some of the other cities like Bengaluru, Mumbai, Pune, NCR (National Capital Region), Hyderabad and Chennai are on top when it comes to this boom in Grade-A office spaces demand. So what is driving this growth and where the market will be in future? In this blog, we dive into the drivers that led to so much expansion in offices and what lies ahead for commercial real estate in India.

Recovery and Post-Pandemic Demand Surge

The post-COVID recovery is one of the main reasons for the current boom in Office markets. The pandemic saw the commercial sector, particularly office space market challenged due to lockdownsand work-from-home trends along with general economic unpredictability. But with businesses embracing the new normal and implementing hybrid work schedules, demand for premium office spaces is now more robust than ever.

The top 7 cities of India have been enjoying the greatest demand for Grade-A office spaces, says Anarock. Leading the pack are Bengaluru, NCR, Pune, Hyderabad and Chennai as companies chasing richer office environment with state-of-the-art infrastructure. The gross leasing absorption in 2024 is scheduled to exceed the historical peak of 65 MSF seen in 2019, with double-digit growth also being witnessed during H1-2024.

Companies Driving: Domestic

Surprisingly, at a time when global factors have had an effect on multinational companies (MNCs) reflecting with the US based MNC’s demand dropping from 45% to now being about 35%, domestic firms in India seem to be raising their game. Indian businesses now contribute to 45% of the total demand for office spaces rising from earlier share in 2019 which stood at 33%. This re-positioning is a testament to the robust macroeconomic fundamentals and in light of work shifting attitudes, continuing demand from Indian corporates who prefer Grade A+ office ecosystems. That is to say, companies are rethinking their work environments and going overbuilding projects to expand office space by up-to 10% within the next two years as focus shifts towards improving end-user experience through superior employee wellness packages.

Small Engine Urban leads the way:

The swing in the office market is even more marked within major cities. Majorly, cities like Bengaluru, Mumbai. Pune and NCR remain the primary options for Corporate occupiers Both India's IT and financial capitals, these cities also have well-established demand for Grade A offices with the latest amenities, state-of-the-art technology features and a focus on employee health.

As per the analysis by Knight Frank, office space addition in key cities of India across saw an increase at 5.2% on year during July-September 2024 as compared to corresponding period a year ago. Only a modest uptick in vacancy levels were observed, with the average office space-to-have-been occupied increasing by 14 percent over the same quarter to accumulate rising stock of demand for new offices. However, the office market is underpinned by strong fundamentals from positive business sentiment and buoyant economic outlook which will continue to support steady take-up levels for new supply over time.

Factors set to help growth

Migration and Urban Sprawl

The answer in India lies mostly with the suburban growth — Bengaluru, Hyderabad and Pune are some cities where new hubs of office spaces are emerging. Over the years, due to IT SEZs and top educational establishments overall talent pool as well business inflow has been consistently increasing in these pockets. Finally, areas that offer better commuter connectivity are more popular as they ensure access to both residential and commercial opportunities.

Affordable Commercial Spaces:

Affordability: Affordability is one of the key factors that has propelled the growth in office spaces. Housing in the suburbs are priced more affordably, with better amenities and infrastructure than your typical inner core homes. It, in turn has; created demand in micro-markets, where businesses and employees alike can settle for a balance between cost and convenience.

Grade-A Office Demand:

As stated, Class A office space is hot. These flexible spaces are also equipped with all the modern amenities and most energy efficient designs along with world class technology which both domestic companies or MNCs will expect. Most important, businesses are focusing on employee well-being and experience holistically; where the office environment is a significant factor in talent retention as well as attraction.

However, in the case of India its Macroeconomic fundamentals are strong which is not likely to change significantly over time.

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Technological Advancements:

Apart from the physical infrastructure, with a view of Digital India on ground level commerce also witnessing major digitization push in commercial real estate sector. The dawn of the smart building — a concept that speaks to an increasingly automated world. The future role of offices Offices are also focusing on a more inspiring intangible): comfort, warmth and design.

Challenges & Market view

Office Market on Boom TimesTridentionTodayWhile the office market is booming, there remain challenges to be overcome. Higher vacancy rates in major markets show that more supply of office space is being brought to market faster than it can be absorbed. This and global market economic volatility, however can mitigate the growth in a long run.

But the big picture is still optimistic. Experts say business momentum in India is robust and sentiments are positive, thus market volumes should continue to grow. The Indian Real Estate Industry is poised to cross the US $1 trillion worth of sale by 2030 and contribute 13% towards GDP until 2025, making commercial real estate a significant element in determining this growth story.

Conclusion:

Surely Indian office market entering into new height of growth. We expect 2024 to be a record-breaking year for transaction volume, with Bengaluru, Mumbai-Pune and NCR leading the Buyer growth in Indian Commercial Real Estate. The office market cloud — led by demand for Grade-A^ [email protected]* from domestic companies which began during the post-pandemic recovery process and is expected to remain strong over the next years.

Several prime reasons have helped in making office space market boom as migration to suburban zones, ease of getting a commercial werkplatz at affordable prices and strong macroeconomic fundamentals. The need for better, modern office spaces will only increase as businesses continue to evolve and invest in their employees well-being. That said, potential supply challenges must be carefully managed in order to cope with the headwinds posed by rising vacancy rates and global economic uncertainties.

The future of Indian real estate market, specifically the office segment looks well poised at this juncture with some great times ahead that will influence India for many years to come.