India’s office space demand is increasing steadily, driven by a diversifying landscape of occupiers from various sectors like technology, engineering & manufacturing, BFSI, healthcare, consulting, and flexible workspaces as opposed to traditional dominance of the technology sector Over the next three years (2025-27), engineering & manufacturing and BFSI occupiers are expected to lease about 11-12 mn sq ft of office space each on an annual basis, up from 8-9 mn sq ft each in the past 3 years. These will together account for about 40% of the total office space demand, according to Colliers’ latest report “The Multifaceted Occupier Landscape of India Office Market” released at the RICS CRE FM conference in Bengaluru. On the other hand, space uptake by technology firms will eventually stabilize at around 15 mn sq ft as they continue to embrace hybrid and distributed working models.Additionally, flex space occupiers are likely to expand into new geographies, accounting for 15-20% of total office leasing in the next 2-3 years.“The paradigm of office space demand in India continues to evolve rapidly, and the pace has in fact become swifter in recent years. In the next few years, average annual space take-up by Engineering & Manufacturing and BFSI occupiers is expected to increase by 35% while tech demand is likely to stabilize. At the same time, demand from domestic-origin occupiers will remain robust, with about 30% of the domestic-origin demand likely to come from flex operators. This broadening of demand base augurs well for major office markets across the country in the long-term.” said Arpit Mehrotra, Managing Director, Office services, India, Colliers.Furthermore, the evolving occupier landscape has deepened the office market in terms of developer offerings too. Developers are increasingly agile in curating the built structure to suit occupier preferences. Thus, the overall office market has gradually matured from a “Supply-led” market to a more “Occupier-driven”market and is likely at a turning point to see heighted growth and scaling up over the next few years. Demand from GCCs and domestic-origin occupiers continue to witness traction and will contribute to demand expansion in the next 2-3 years. While the top 6 cities will continue to drive contours of commercial real estate in India, newer markets, especially tier II cities, are expected to emerge as high potential growth centers.“GCC demand too is likely to be on the upswing. Interestingly, as GCCs reposition themselves as knowledge and innovation centers, they are likely to account for almost 40% of the Grade A office space demand in the next few years,” said Arpit Mehrotra, Managing Director, Office services, India, Colliers.The report that the distributed work models following the pandemic had led to an average deal sizes across sectors decreased to approximately 43,000 sq ft. in 2023, marking an 11% drop from 2019 levels. This has led to the number of deals increased by 44%, revealing a shift in occupiers’ preferences and the embrace of “Hub” and “Spoke” offices. Notably, the volume of flex space and engineering & manufacturing deals surged by over 70% post-pandemic compared to the pre-pandemic period. It is anticipated that average transaction sizes could further decline to 35,000-40,000 in 2024 while deal volumes are projected to increase and likely an uptick in mid-sized deals in contrast to the rise in small and large-sized deals. “It is anticipated that the office leasing market will experience a significant breakthrough in the next few years, as a result of the past three years of reduced decision-making activity from both global and local occupiers,” said Juggy Marwaha, CEO, Prestige Office Ventures. According to the report, Bengaluru remains amongst the leading markets for Grade A office demand across sectors, cities such as Hyderabad, Chennai, and Pune are rapidly catching up and seeing heightened demand from flex spaces, BFSI and engineering & manufacturing firms. Some of the high performing micro markets such as SBD -Hyderabad have surpassed more prominent micro markets of Bangalore in terms of office space take up by Technology sector. Other micro markets including OMR (Zone 1) in Chennai, Kharadi & Baner-Balewadi in Pune and Off SBD in Hyderabad Have witnessed increased traction across key demand sectors,highlighting the evolving locational preferences of occupiers.“The demand scale-up will be evident at a city level also. Amongst the top six cities, Bengaluru can potentially witness annual leasing activity closer to 20 mn sq ft, while Delhi NCR and Hyderabad are expected to see office space demand in upwards of 10 mn sq ft in the next few years. Mumbai, Pune and Chennai too are likely to witness annual demand uptick by 20-30%. Furthermore, we anticipate healthy traction in office markets of relatively smaller cities such as Bhubaneshwar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Thiruvananthapuram etc.” said Vimal Nadar, Senior Director & Head, Research, Colliers India.
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