Office market sees record demand surge: Biggest deals in Bengaluru, MMR

IT/ITES and BFSI remain the key demand drivers, with co-working also gaining momentum.

India’s office real estate market has witnessed a historic surge in demand, with 58 million square feet (msf) of office space leased in the first three quarters of 2024 — the highest demand ever recorded for this period. This figure has already surpassed the total demand for the entire year of 2018, setting a new benchmark for the industry, according to a report by real estate consultancy firm CRE Matrix.

 

As the market enters the final quarter, industry experts at CRE Matrix predict that 2024 will mark India’s strongest year for office space demand, with expectations that it will reach an all-time high of 80 msf by year-end. The major drivers of this surge are the expanding Global Capability Centers (GCCs), co-working spaces, and the IT/ITeS sectors, which are fueling the growth.

 

The demand-to-supply ratio has reached an impressive 1.6x, the highest ever, indicating a competitive market favoring landlords. Despite increased supply, which stands at 4.8 msf in Q3 2024, the vacancy rate has dropped to 9.7% — the lowest in 14 quarters — driven largely by  high demand in key markets such as Bengaluru, Mumbai Metropolitan Region (MMR), and Hyderabad. These cities accounted for 28%, 19%, and 17% of the total demand, respectively.

 

Rents have also seen significant growth, with the market rent breaching Rs 100 per square foot in Bengaluru and the National Capital Region (NCR), bringing the overall pan-India market rent to Rs 110 per square foot. This upward trajectory in rents is reflective of the landlord’s market conditions, with a reported 22% increase in quarterly demand for co-working spaces, marking the highest ever recorded.

 

Major transactions in Bengaluru this quarter include:

• Natwest Digital Services leased 370,630 sqft at Rs 106 per sqft in Bagmane Constellation Business Park, Bengaluru.
• Atlassian India signed a lease for 214,585 sqft at Rs 134 per sqft in DivyaSree Greens, Bengaluru.
• ANZ leased 520,650 sqft at Rs 96 per sqft in Manyata Embassy Business Park, Bengaluru.
• Walmart took 682,388 sqft at Rs 82 per sqft in Prestige Tech Pacific Park, Bengaluru.

 

Major transactions in Mumbai include: 

Tablespace, R Square (Andheri) leased 146,784 sqft at Rs 158 per sqft.

Red Brick, Godrej Two leased 68,627 sqft at Rs 170 per sqft.

Goldman Sachs, KRC The Ascentia 73,905 sqft | Rs 280 psf

 

On the supply side, the market is seeing an active pipeline with approximately 100 msf of office space under construction across India. This includes significant developments in key markets, with IT parks accounting for 49% of the upcoming supply, while non-IT spaces make up the remaining 51%.

 

Regional Market Highlights:

• Bengaluru continues to lead the market with a significant 28% share of total demand. Market rents here have crossed the Rs 100 mark, signaling strong demand for premium office spaces.
• MMR and Hyderabad follow with 19% and 17% of total demand, respectively. These cities are becoming hotspots for technology, IT/ITeS, and co-working companies.
• Pune, Delhi-NCR, and Hyderabad continue to witness substantial leasing activity as well, particularly in the IT and co-working sectors.
• With the sustained demand and low vacancy rates, landlords continue to benefit from increased market rents. As we approach the end of 2024, the office real estate market remains bullish, driven by the continued growth of the IT sector, GCCs, and evolving workspaces, such as co-working spaces.

 

Key Takeaways:

• 58 msf of demand recorded in the first three quarters of 2024.
• Record-breaking demand-to-supply ratio at 1.6x.
• Vacancy rate at a 14-quarter low of 9.7%.
• Bengaluru, MMR, and Hyderabad lead in demand share.
• Market rents surpass Rs 100 in Bengaluru and NCR.

 

" Bengaluru and Hyderabad remained dominant markets, driving almost half of the leasing activity between January and September. At India level, 2024 is likely to see Grade A absorption breach 60 million sq feet for the first time in the office market of the country. Although demand from tech occupiers has relatively stabilized, it will continue to drive one-fourth of the overall leasing. On the other hand, flex space demand is set to surge and can potentially account for one-fifth of the total demand across the top six cities in 2024. Similar to demand, the 37.4 million sq feet of completions during the first three quarters of 2024 were led by Bengaluru and Hyderabad. Overall, new supply is also likely to follow demand and surpass the 50 million sq feet mark in 2024. Vacancy levels at the end of 2024 will remain rangebound. Rentals, meanwhile, are expected to show a 5-10% annual growth across most cities," said Badal Yagnik, CEO of Colliers India, a real estate consultancy firm. 

 

Here are the key trends for 2025, according to Colliers India

 

Demand base to broaden further with BFSI and Engg. & Mftg, as front runners: In the upcoming year, engineering & manufacturing and BFSI occupiers are expected to together account for about 35-40% of the total office space demand. On the other hand, space uptake by technology firms will eventually stabilize and drive about 25-30% of the total demand as they continue to embrace hybrid and distributed working models.

 

GCC demand likely to be on an upswing: GCCs are expected to continue to play a pivotal role in driving the demand for Grade A office space in India, accounting for 40-50% of the leasing activity in 2025. 

 

Increasing space rationalization: Going forward, as corporates increasingly implement decentralized work strategies, occupiers are likely to expand their offices in multiple locations with relatively smaller real estate footprints. Average deal size across sectors post-pandemic has rationalized at around 43,000 sq feet in 2023, an 11% dip compared to 2019 levels. At the same time, number of deals rose by 43% during the same period. 

 

Rising activity in Tier-II & III Cities: Corporate India is increasingly open towards operating beyond traditional commercial hubs. Cities like Bhubaneswar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Thiruvananthapuram etc. are likely to witness a significant influx of businesses, driven by factors such as lower operating costs, equally strong availability of skilled talent and infrastructure upgrades. This shift is likely to result in a significant demand surge across these smaller cities in 2025. Most of the Tier-II & III cities are likely to witness healthy annual growth in Grade A leasing activity.

 

Flex spaces growth to continue: As flex spaces continue to transform from niche to mainstream, they are likely to increasingly define the contours of Grade A office spaces in India. Reimagination of workplace, changing perceptions and enterprise-level offerings will continue to drive heightened flex adoption in 2025. Share of leasing by flex space operators is likely to be at around 20% of the overall office demand in the upcoming year. 

 

 Green certified buildings at the forefront: With a growing emphasis on sustainability, most new office developments in India are incorporating green building practices. LEED and GRIHA-certified buildings are becoming the norm, driven by operational efficacy and compliance pressures. Looking ahead, nearly 80% of the supply pipeline over the next 2-3 years is expected to be green-certified, underscoring the shift towards more sustainable real estate development.