India office market update: Q2 2024

Gross leasing activity in Q2 2024 reached 18.38 mn sq ft, demonstrating a 21.3% increase q-o-q. This quarter ranks as the third-best quarter ever, except Q4 2023 and Q2 2019 in terms of leasing volumes. Notably, the last four consecutive quarters have exceeded the 15 mn sq ft mark in gross leasing volumes, indicating significant momentum in the office market. Furthermore, H1 2024 has marked the best-ever first half, with leasing volumes reaching 33.5 mn sq ft. It is of note that this is the first quarter when all seven cities under review recorded gross leasing levels surpassing 1 mn sq ft, driven by the strong performance of Kolkata in the quarter.

With global economic and business conditions stabilizing, global occupiers are now more confident in their real estate plans. India is a top destination for expanding their footprint and driving business growth. In Q2, global occupiers accounted for a significant 60.9% share of gross leasing volumes. Domestic occupiers, however, have demonstrated sustained momentum as well. They have accounted for a 48.2% share of India’s gross leasing activity since 2022. This signifies a notable increase from the approximate 35% average share observed during the three-year period from 2017 to 2019. While global occupiers remain optimistic about expanding and growing their operations in India, a robust domestic economy is fostering resilience in the office market.

Net absorption across the top seven cities at 10.58 mn sq ft in Q2 2024; up 27.5% q-o-q

India’s net absorption figures across the top seven cities stood at 10.58 mn sq ft, a significant improvement of 27.5% q-o-q. On a H1 comparison, there was a 22.7% y-o-y increase, indicating sustained expansion-driven activity that has led to firms, both global and domestic, adding to their aggregate headcount. It is a testament to the country’s skilled talent pool and competitive costs that most global firms’ business plans involve capacity augmentation in India.

Key Trends:

• Bengaluru leads Q2 leasing activity across cities: Bengaluru led leasing activity in Q2, accounting for a 33.3% share of quarterly gross leasing, followed closely by Delhi NCR with a 20.7% share. These two cities have been consistently exchanging their positions as the top two markets with the highest occupier activity. Notably, for Bengaluru, Q2 2024 gross leasing reached its third-highest level ever. Hyderabad and Mumbai also recorded robust leasing activity, contributing 13.1% and 12.2% shares, respectively.

• The net absorption during the quarter was led by Delhi NCR: The net absorption during the quarter was led by Delhi NCR with share of 22.9%, followed by Bengaluru with 20.62% and Mumbai with 15.2% shares, respectively. In the half yearly analysis, these three cities maintained their top positions.

• Quarterly new completions are up by 36.6% q-o-q: New completions during the quarter were recorded at 11.31 mn sq ft, up by 36.6 % q-o-q and 7.9% up compared to Q2 2023. New completions in Q2 were headlined by Bengaluru accounting for a 36.1% share, followed by Hyderabad with 31.5% and Mumbai with 16.3% shares, respectively.

• Vacancy falls 10 bps q-o-q: Vacancy on a pan-India basis stands at 17.0%, 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.

• Strong comeback by tech in Q2; BFSI, manufacturing/engineering remain healthy: Tech saw its strongest performance in two years, with its share of Q2 gross leasing at 31.5%. BFSI also had a strong showing, accounting for a 20.3% share, followed by the manufacturing/engineering segment with a 17.3% share. Flex operator activity remained resilient with a 14.6% share of leasing activity in Q2.