India's Office Market Sees Rise In Q1 2024

April 30th, 2024

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Office space absorption in India increased by 13 per cent to 13.4 million square feet (msf) in the first quarter (Q1) of 2024 compared to the same period in 2023, according to a report by real estate consultant Vestian. This growth is attributed to the implementation of "Return to Office" mandates by several companies.

However, there is a caveat. While there's a year-on-year increase, absorption dipped by 31 per cent when compared to the peak recorded in Q4 2023.

Southern Cities Lead the Charge
The report also highlights a significant regional trend. Southern cities like Bengaluru, Chennai, and Hyderabad are driving the national office space absorption. Collectively, they accounted for 61 per cent of the pan-India office space take-up in Q1 2024, up from 54 per cent a year earlier.

Interestingly, absorption in Chennai and Mumbai more than doubled year-on-year, while Hyderabad saw a 51 per cent increase. In contrast, all other cities covered in the report (Kolkata, Pune, and NCR) witnessed a decline in office space absorption compared to Q1 2023.

IT and BFSI Sectors Dominate Demand
The report sheds light on the sectors driving this office space demand. The IT-ITeS sector emerged as the leader, accounting for 47 per cent of the absorption, followed by the BFSI sector at 11 per cent. Notably, flexible workspaces have also gained traction with large corporations post-pandemic, contributing eight per cent to the overall absorption in Q1 2024.

"Return to Office" Expected to Fuel Further Growth
Experts believe that the "Return to Office" mandates will further propel demand for office space across the country. This, coupled with limited new completions in the past year, is expected to drive rental prices northward.

Limited New Supply Leads to Occupancy Rise
The report also highlights a trend in new commercial real estate construction. New completions followed a similar pattern to absorption, with a 26 per cent annual increase reaching 10.8 msf in Q1 2024. However, there was a quarter-on-quarter decline of 27 per cent. Bengaluru dominated new completions with 3.7 msf, while Hyderabad reported nearly 2.5 msf of new supply during the same period.

With absorption outpacing new completions, there has been a slight improvement in occupancy levels across India. The current national vacancy rate stands at 13.8 per cent, and this number is expected to decrease further in the second half of 2024 due to the growing influence of "Back to Office" policies.

Rental Rates on the Rise
Limited new supply coupled with sustained absorption activity has pushed rental rates northward. Rents in the top seven cities witnessed an appreciation of 2.4 per cent to 6.8 per cent over the previous year. Pune saw the highest annual increase in rental prices due to strong demand for office space, with a significant portion (around 37 per cent) of transactions concentrated in the manufacturing and engineering sectors.

The report concludes with a positive outlook for the Indian commercial real estate market. Domestic investors are bullish on India's growth story and are anticipated to play a significant role in the future development of office spaces.