Office market net absorption in Q1 2024 at 11.5 mn sq ft across top 8 cities

Office market net absorption in Q1 2024 at 11.5 mn sq ft across top 8 cities

Despite global headwinds, the Indian office market continues its positive trajectory, registering a net absorption of 11.5 mn sq ft across top eight cities in Q1 2024, according to Cushman & Wakefield’s Q1 office data.

The office space in India's top seven markets is expected to increase to over 800 mn sq ft by the fourth quarter of 2023, up from the current 792.8 mn sq ft as of September 2023. (Pixabay)
The office space in India’s top seven markets is expected to increase to over 800 mn sq ft by the fourth quarter of 2023, up from the current 792.8 mn sq ft as of September 2023. (Pixabay)

This is the third-highest level recorded in the last five years, demonstrating a robust appetite for office space among businesses. Net absorption is a barometer of real demand or expansion of occupied space in the market.

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While this quarter’s net absorption was 38% lower than Q4-2023, it was a 44% increase over Q1 2023, indicating continued space occupation by businesses.

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Bengaluru and Mumbai emerged as the leading markets, absorbing 3.6 mn sq ft and 2.5 mn sq ft of space, respectively. They were followed by Hyderabad at 1.6 mn sq ft, Delhi-NCR at 1.5 mn sq ft and Pune at 1.3 mn sq ft, Ahmedabad and Kolkata at 1 mn sq ft, and Chennai at .8 mn sq ft.

According to the report, the Gross Leasing Volume (GLV) also remained robust at over 20 mn sq ft, a 20% decrease q-o-q but a steep rise of 33% on a y-o-y basis. Gross leasing volume, which factors in all leasing activity in the market, including renewal of contracted terms by corporates, is an indication of overall market activity. This quarter’s figures signify a resilient market with sustained interest in office space, the report said.

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Nearly a third of the entire India GLV was recorded in just one city, Bengaluru (6.7 mn sq ft), followed by Mumbai (4.8 mn sq ft) with a share of one-quarter. The two cities combined had a share of over 57% in total leasing volumes for the first quarter.

A significant contribution to Bengaluru’s healthy leasing volume was 4.8 mn sq ft of fresh leasing activity, and the city accounted for 33% of total fresh space leasing across the top-8 markets. The city also received close to 2.0 mn sq ft of pre-commitments during Q1-24, thereby making it the largest contributor amongst all.

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In line with the trend seen in the recent past, fresh leasing continues to dominate GLV with 72% share, with pre-commitments and term renewals taking-up the balance 28% in GLV.

Among the sectors, IT-BPM and engineering and manufacturing sectors emerged as the major drivers of demand, contributing over 45% to the GLV. The BFSI and flex space leasing followed with around 17% and around 11% shares, respectively.

Global Capability Centers (GCCs) took up close to 4.5 mn sq ft (around 22% share in GLV) of office space in Q1, further consolidating the belief that this sector is having a positive influence on the office market of India.

The first quarter also witnessed close to 13 mn sq ft of new supply, continuing the momentum of healthy supply from previous quarters. The cities that saw the biggest supply additions were Hyderabad (2.9 mn sq ft), Bengaluru (2.9 mn sq ft) and Delhi-NCR (2.8 mn sq ft).

These three, together accounted for over 67% of total supply in top 8 cities. The new supply, coupled with strong absorption, led to a slight decline in the national vacancy rate to 18.1%. Notably, Mumbai’s supply-constrained market witnessed the sharpest vacancy rate drop by 1.22% points to around 17%.

Rents across most cities exhibit upward trend

“The Indian office market is experiencing a robust momentum. We haven’t witnessed 20 mn sq ft of leasing being recorded for two consecutive quarters in recent history. The strong leasing, coupled with net absorption of 11.5 mn sq ft– the third highest in the past five years (the previous being in Q4 2023 and Q2 2019) – signifies a surge in tenant interest for office space. As witnessed in the previous quarters, the impressive surge in office demand is primarily driven by fresh leasing,” said Anshul Jain, Chief Executive, India & Southeast Asia and Head of Asia Pacific Tenant Representation.

“Over the past few years, there has been a consistent rise in the demand for office space. The level of demand may vary depending on the location, but sectors such as BFSI, startups, and IT-ITES have been key drivers for this demand. Co-working players have also significantly contributed in the last few years post Covid. Despite economic challenges faced by global economies, the office market has received significant support from domestic companies as well as global ones increasing their presence across locations,” said Gagan Randev, executive director, India Sotheby’s International Realty.

Amal Mishra, Co-founder, UrbanVault, a Bengaluru-based managed co-working space provider said that the demand for office space has been steadily increasing over the past couple of years. While the IT and BFSI sectors have been the primary drivers of this demand, other sectors are also contributing to significant growth in demand. “We attribute this rise in demand to several factors, including a favorable economic environment, stable governance, improvements in the ease of doing business, and the availability of Grade A office spaces,” he said.

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