 "Tech continues to lead; diversification shapes demand in real estate sector")
Despite macroeconomic challenges and short-term disruptions, office leasing in India has remained resilient with 42.2 million sq ft of space being leased between January and September this year, according to the 2023 Real Estate Overview and Outlook released by CBRE Group, a commercial real estate services and investment firm. Among this, the technology sector has remained strong and diversification of demand has been observed across banking, financial services and insurance (BSFI), flexible spaces, and engineering & manufacturing. This all signals a promising trajectory, potentially propelling gross leasing to breach the 50 million sq ft mark by the end of the ongoing calendar year.
Tech continues to lead
The average share of technology has consistently led to the demand for office space leasing. The tech sector makes up around 35 per cent of the demand and even crosses the 40 per cent mark in cities like Bangalore and Hyderabad.
The BFSI sector, propelled by government infrastructure spending, has been thriving, while flexible workspaces have also gained prominence in the era of hybrid work. Engineering & manufacturing also saw absorption due to global supply chain realignment, contributing to the sector's growth.
Chennai saw the highest absorption of 48 per cent and touched about 6.5 million sq ft. Pune and Hyderabad's space take-up increased by 36 per cent and 35 per cent to reach 5.1 million sq ft and 6.6 million sq ft, respectively.
Anshuman Magazine, the chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE stated, "Going forward, we expect this demand diversification trend to grow, thereby supporting the overall growth of the office sector. Along with this industry sector diversification, the office sector also witnessed leasing widening across cities."
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Retail market
Despite inflationary pressures, India's retail sector remained vibrant during this period, with diverse demand drivers reshaping the landscape. Domestic retailers take the lead, accounting for 75 per cent of leasing in Jan-Sep’23. Shifts in leasing patterns revealed an increased demand for departmental & homeware stores, entertainment zones, and luxury retail categories, reflecting evolving market dynamics and consumer preferences.
Industrial & logistics (I&L)
Third-party logistics (3PL) and manufacturing players fuel growth in the I&L sector, reaching a five-year high absorption mark of 36 – 38 million sq ft in 2023. Demand from the auto and ancillary sectors also rose due to government initiatives like the production-linked incentive (PLI) scheme, influencing a surge in warehousing needs.
Residential sector
Despite a high-interest regime, residential sales surpassed expectations, exceeding 230,000 units in Jan-Sep '23. The premium and luxury housing segment witnessed remarkable growth, with sales of luxury units rising by over 75 per cent. Changing preferences indicate that affordability is no longer the sole determinant, with emphasis on health & safety, community living, and smart home technologies.
Real estate investments
Land acquisitions surge, constituting 40 per cent of the $5.1 billion inflows into the Indian real estate sector in 2023. Domestic developers take the lead, with 42 per cent share in overall investments, while international investment funds exhibited caution. The overall capital inflow is expected to taper in 2023, but strategic bets in residential and I&L sectors continue.
What is the outlook for leasing in 2024?
Hybrid working models become the norm, with Bangalore, Hyderabad, and Delhi-NCR leading in completions. Corporations express a positive outlook on India, anticipating growth in both conventional and flexible office spaces. Meanwhile, consumer spending projections keep retail leasing positive in 2024. Prime high streets and shopping centres remain highly occupied, with leading developers expanding not only in tier I but also in tier II cities.
Strong demand propels leasing momentum in I&L in 2024. Rising transportation costs drive occupiers to focus on upgrading/expanding opportunities in tier-I cities and expanding local distribution networks in emerging logistics hubs.
In the residential sector, homebuying sentiment is likely to persist, with a strong demand for mid-end and budget/affordable projects (Rs 45 lakh - 1 crore). The premium and luxury segments (Rs 2 – 4 crore and above) continue to experience healthy growth, driven by reputable developers exploring new cities.
"We anticipate that investment flows in 2024 would remain steady with development sites and office sectors likely to lead investments," stated the Chairman. He added that metros and tier I cities remain major recipients, but tier II cities may see increased investments due to rising redevelopment activity in retail and I&L sectors.