India Office Market Dynamics - Q4 2024

 India office market remains the focal point of headcount addition and RE growth for global occupiers, reiterated by the net absorption for 2024 hitting historic peak levels of 49.95 mn sq ft. A strong finish to the year was visible in Q4 being the best ever in net absorption figures at 18.92 mn sq ft. 

 The top seven cities’ quarterly net absorption figures had Bengaluru posting its best quarter, while accounting for a 35.4% share, signalling the strong occupier demand that remains sustained for this city. Hyderabad jumped to the second spot with a 15.7% share followed by Delhi NCR with 15.0% and Chennai with 11.3% share in the quarterly net absorption numbers.

 Leasing activity across the top seven cities continues to see a sustained period of intense activity, underpinned by demand from both global and domestic occupiers. Global firms remain committed to their RE expansion plans keeping India in focus, which is evidenced by them accounting for a 58.6% share in the annual leasing numbers for 2024. The annual gross leasing of 77.22 mn sq ft across the top seven cities is the best-ever for the India office market, outshining the previous peak recorded in 2023 by a significant 22.6% y-o-y.

Q4 2024 turned out to be the best performing quarter in terms of gross leasing at 23.80 mn sq ft, easily surpassing the previous peak recorded in the same period a year ago, by a factor of 13.6%.

 In Q4 2024, Tech led with a 30.6% share, followed by flex with 18.5%. BFSI and Manufacturing/engineering followed with shares of 16.5% and 16.4% respectively, underlining the secular demand across segments which has kept the market momentum unfettered.

Quarterly completions rose to a four-quarter high of 16.06 mn sq ft, driven by the tech cities of Bengaluru, Hyderabad and Pune. This still remained lower by 14.4% year-over-year indicating a balanced dynamic between demand and supply. Annual supply additions were at a three-year low and kept pace with demand levels, with core markets across most major cities exhibiting single-digit vacancy levels.

 Overall vacancy across the top seven cities dropped to a three-year low of 16.2% and was down by 70 bps q-o-q. The historic high net absorption amid balanced supply in 2024 has supported the vacancy decline. Vacancy was down q-o-q across all cities, barring Pune. 

On a q-o-q basis, average rental values across all the major office markets except Chennai increased marginally with growth in the range of 0.4%-6.6%. Hyderabad, Kolkata, Bengaluru and Mumbai witnessed the maximum growth during the quarter. The rental values on a y-o-y basis (Q4 2024 vs Q4 2023) have increased across all cities, with Kolkata witnessing the maximum growth of 10.0%, followed by Hyderabad and Bengaluru with a growth of 8.2% and 5.6% respectively. Mumbai, Delhi NCR, Chennai and Pune recorded 5.0%, 4.9%, 3.5% and 2.2% y-o-y rental growth, respectively.

India office market scaled new peaks in 2024 and surpassed even the optimistic forecasts to exceed 77 mn sq ft occupier leasing volumes. As ‘office to the world’, India is key to headcount augmentation and capacity growth for global firms, while domestic occupiers remain ebullient in the wake of economic resilience and growth opportunities. This has created a sustained runway for the market to grow further. The growth markers in the office market are expected to pivot around GCC activity – driven by expansion of existing ones and new entrants across multiple sectors. Core markets and quality real estate assets will be in focus as GCCs push forward on expanding their footprint, with talent availability and costs to be key driving factors as well.

While the supply pipeline remains robust as institutional as well as domestic landlords continue to push forth on completions, ‘flight to quality’ and obsolescence will support rental and occupancy premiums in favour of quality assets.

Rents are expected to remain growth-oriented with core markets and institutionally-owned assets likely to drive rental growth in their respective geographies. We expect that premium quality assets are likely to show annual rent growth in line with contractual escalations or higher.