Office Market Update: Q1 2024

Gross leasing in India’s top seven markets was recorded at an impressive 15.16 mn sq ft in Q1, an increase of 13.8% compared to the same period last year. This marks the third consecutive quarter where gross leasing has surpassed the 15 mn sq ft mark, following the historical high of 20.94 mn sq ft in Q4 2023 and 16.03 mn sq ft in Q3 2023. Notably, this also represents the second-highest gross leasing ever recorded in the first quarter of any year, only trailing the levels of 17.3 mn sq ft witnessed in Q1 2020. The quarter has set the platform for India’s office market to reach and even surpass the peak activity levels witnessed in 2023.

Q1 belonged to domestic occupiers, particularly in the BFSI, Flex, and manufacturing/ engineering segments as they gained a majority share in office leasing. While global corporations remain strong takers of office space in India, their sluggish decision-making has seen the strong domestic economy pick up the slack. Domestic occupiers intensified their demand, contributing ~53% to the gross leasing activity. This remains in line with the trend being observed over the past 2 years where domestic occupiers have consistently gone toe to toe with their global counterparts in space acquisition.

India’s net absorption across the top 7 cities, stood at 8.3 mn sq ft, up by 10.9% y-o-y. This first quarter performance is second only to the Q1 2022 number in the post-COVID period, signifying the consistent headcount growth-driven expansion activity by corporates in India. It is a testament to the country’s talent pool and competitive costs that most global firms’ business plans involve capacity augmentation in India.

Key Trends:

• Delhi NCR and Bengaluru account for ~47% of the Q1 gross leasing activity: Delhi NCR and Bengaluru emerged as frontrunners in the market, accounting for 26.6% and 20.4% of the overall gross leasing in Q1 2024, respectively. Chennai continued its strong showing, following up from the momentum witnessed in 2023, contributing to a significant 17.6% share of the overall leasing. Mumbai and Pune followed with gross leasing figures of 2.11 mn sq ft and 1.81 mn sq ft, respectively.

• The net absorption during the quarter was led by Delhi NCR: Delhi NCR had a share of 28.2% followed by Bengaluru with 21.2% and Mumbai with 18.8% shares, respectively. The first quarter net absorption for the cities of Delhi NCR, Mumbai, Hyderabad, and Chennai were also all at post-COVID highs compared to previous Q1 numbers, symptomatic of expansion-led demand on track to near historic highs in the India office market.

• Quarterly supply at a 15-quarter low: new completions kept pace with net absorption for Q1 2024 but were at a 15-quarter low and down by 55.8% q-o-q. New completions in Q1 were headlined by Hyderabad which accounted for a 25.1% share, followed by Delhi NCR with 20.4% and Mumbai with 19.8% shares, respectively.

• Vacancy falls 10 bps q-o-q: Vacancy on a pan-India basis stands at 17.1%, a 10 bps decrease q-o-q. Core markets and superior quality institutional assets continue to find favour from occupiers resulting in significantly lower vacancy rates, usually in the single digits.