India office market dynamics: Q3 2024

The Indian office market demonstrated robust performance in Q3 2024, with gross leasing activity reaching 19.89 million sq ft, the second highest quarterly volume ever recorded. For the first nine months of 2024, gross leasing hit 53.43 million sq ft, the highest ever for the January-September period. Net absorption in Q3 was 12.16 million sq ft, up 13.7% year-over-year and 14.9% quarter-over-quarter. New completions totalled 13.84 million sq ft, down 4.1% year-over-year but the highest so far in 2024. The overall vacancy rate decreased marginally to 16.9%, down 10 basis points quarter-over-quarter. Rents continued to rise, up 3.5% year-over-year across all major cities.

Bengaluru led Q3 leasing with a 24.6% share, followed by Delhi NCR at 23.1%. For Jan-Sep 2024, Bengaluru, Delhi NCR and Mumbai combined for 63.6% of leasing. Global occupiers accounted for 56.8% of Q3 leasing and 55.5% for Jan-Sep 2024, while domestic occupiers remained active with a 44.5% share for Jan-Sep 2024. Flex space became the leading occupier segment for the first time in Q3 with a 22.7% share, followed by Tech at 18.5%, BFSI at 16.5%, and manufacturing/engineering at 13.8%.

All major cities saw year-over-year rent increases, with Chennai experiencing the highest growth at 6.2%, followed by Mumbai and Delhi NCR at 5.0% and 4.7% respectively. Growth was driven by core markets and quality assets. Managed office demand remained strong, with enterprise seats leasing reaching 120,300+ seats in the first 9 months of 2024. Bengaluru led with a 25.9% share, followed by Delhi NCR (18.9%) and Chennai (15.5%).

City-specific highlights:

Bengaluru: Q3 gross leasing reached 4.9 million sq ft, up 18% quarter-over-quarter. Net absorption was 4.1 million sq ft, up 90% quarter-over-quarter. Vacancy decreased to 13.3%, down 60 basis points quarter-over-quarter. Rents increased by 0.7% quarter-over-quarter and 3.1% year-over-year.

Chennai: Q3 gross leasing hit 1.7 million sq ft, up 30% quarter-over-quarter. Net absorption increased 17% year-over-year. Vacancy decreased to 9.4%, down 20 basis points quarter-over-quarter, the lowest in 16 quarters. Rents rose by 1.6% quarter-over-quarter and 6.2% year-over-year.

Delhi NCR: Q3 net absorption was 1.92 million sq ft, up 13% year-over-year. New supply totalled 1.09 million sq ft. Vacancy stood at 23.2%. Rents increased by 1.4% quarter-over-quarter and 4.7% year-over-year.

Hyderabad: Q3 gross leasing reached 2.97 million sq ft, up 23.5% quarter-over-quarter. Net absorption was 1.26 million sq ft, down 17.2% quarter-over-quarter. New supply totalled 4.0 million sq ft. Vacancy increased to 26.6%, up 110 basis points quarter-over-quarter. Rents rose by 0.7% quarter-over-quarter and 1.7% year-over-year.

Kolkata: Q3 gross leasing stood at 0.21 million sq ft. Net absorption was 0.13 million sq ft. Vacancy decreased by 30 basis points quarter-over-quarter. Rents remained stable quarter-over-quarter but increased by 3.7% year-over-year.

Mumbai: Q3 net absorption reached 1.85 million sq ft, the highest in 2024. New supply totalled 2.3 million sq ft. Vacancy increased to 13.0%, up 10 basis points quarter-over-quarter. Rents rose by 1.8% quarter-over-quarter and 5.0% year-over-year.

Pune: Q3 gross leasing hit 2.33 million sq ft, up 74.0% quarter-over-quarter. Net absorption was 1.80 million sq ft, up 2.12 times quarter-over-quarter. New supply totalled 2.64 million sq ft. Vacancy increased to 13.4%, up 80 basis points quarter-over-quarter. Rents rose by 1.7% quarter-over-quarter and 2.4% year-over-year.

Looking ahead, the Indian office market is expected to continue its strong performance, potentially surpassing 70 million sq ft in gross leasing activity for the full year 2024. Net absorption is likely to match or exceed 2019 levels. Global Capability Centres (GCCs) are expected to drive future demand, with both existing GCCs expanding and new entrants establishing a presence. Activity is anticipated to remain centred around core tech cities and other multi-sectoral markets.

Domestic occupier activity is expected to focus on flex operators, financial services firms, manufacturing/engineering players, and tech outsourcing majors. Quality completions and a healthy deal pipeline suggest net absorption in 2024 will surpass 2023 levels and approach 2019 peak numbers. Rental growth is expected to continue, particularly in institutionally owned and managed assets, driven by tight vacancy levels in premium properties.

The convergence of positive market factors, anticipated quality new office spaces, and high tenant occupancy is likely to boost investor interest in India's office market. Despite some global economic uncertainties, India's position as an "office to the world" remains strong, with the market on track for a record-breaking year in 2024.

In conclusion, the Indian office market is demonstrating resilience and growth, supported by both global and domestic demand. The market is becoming more broad-based, with a secular share emerging among various occupier categories. The strong fundamentals have put India on track to witness a record-breaking year, with projected gross leasing activity anticipated to cross 70 million sq ft in 2024, surpassing the previous high seen just last year.