South India office market on the fast lane driven by IT sector, GCCs

Real estate management firm JLL reports that the combined share of southern cities in India's annual net absorption has remained between 54-56 per cent during 2022 and 2023

South India’s office market is experiencing exponential growth, driven by increased interest from multinationals (MNCs), especially global capability centres (GCCs) and the information technology (IT) sector.

Real estate management firm JLL reports that the combined share of southern cities — Bengaluru Hyderabad and Chennai — in India's annual net absorption has remained between 54 and 56 per cent in 2022 and 2023, with a slight increase expected over the next two years.

The tech sector is robust in these cities, with GCCs significantly driving office leasing activities, especially in Bengaluru and Hyderabad.

“These three cities combined have a share of more than 66 per cent in the active request for proposals (RFPs) of 29-30 million square feet at the all-India level. Office demand for the three prime south Indian markets has been quite robust. The tech sector is strong in these cities and the GCCs have been driving office leasing activities in a big way, particularly Bengaluru and Hyderabad,” said Samantak Das, chief economist and head of research & Real Estate Intelligence Service (REIS), India, JLL.

 

In terms of new supply, the three cities cumulatively accounted for about 65 per cent of new Grade A supply in 2023, according to Cushman & Wakefield.

In Kerala, Kochi and Thiruvananthapuram, emerged as two of the fastest-growing cities in India’s Tier II league.

“New GCCs set up in India, both greenfield as well expansion by existing MNC occupiers, touched a record high in 2023…The three south India cities cumulatively accounted for about 74 per cent of space leased for new GCC centres, led by Bengaluru and Hyderabad. In Q1 2024, the share of south India jumped to 84 per cent in pan India GCC space leasing volumes. South Indian tech cities remain the key driver of GCC activity in India and will remain so in the medium term. India is expected to witness the entry of over 100 new GCC companies in 2024 and 2025 and South India is likely to remain the destination of choice for many of them,” said Veera Babu, Managing Director, Tenant Representation, India, Cushman & Wakefield.

Within Embassy REIT’s portfolio, its Bengaluru assets are at an occupancy rate of over 90 per cent. Its entire development pipeline of 6.1 million sq. ft. — at an investment of Rs 3,800 crore — is concentrated in this city.

“India’s office leasing market is on a steady growth trajectory, particularly in the south, where Bengaluru stands out as a frontrunner. It commands approximately 55 per cent of the active demand. Markets like Chennai are booming as well with absorption of around 9.4 million sq. ft. in 2023,” said Aravind Maiya, CEO, Embassy REIT.

WeWork India, headquartered in Bengaluru, predicts significant growth in the southern market due to increased occupancy in GCCs.

According to WeWork India, Bengaluru, Hyderabad and Chennai are becoming prime choices for GCCs, representing 60 per cent of entries into India over 12-15 months.

Currently, 30 per cent of WeWork India's members are GCC entities, indicating substantial growth potential.

“In Bengaluru, the technology sector, particularly software and product development, is a major contributor, representing nearly 70 per cent of our member base. Meanwhile, Hyderabad is becoming a hub for operations and shared services, with a strong presence in pharma, technology, and consulting. Additionally, startups also continue to be a key component of our growth,” said Karan Virwani, CEO, WeWork India.

WeWork India aims to become the top choice for GCCs seeking innovative office solutions. With 27 locations and more than 44,500 desks in Bengaluru and Hyderabad, it dominates the southern region.

Expanding its footprint, WeWork will launch WeWork Olympia Cyberspace in Chennai by early June, further solidifying its presence in the Southern India office landscape.

Concorde attributes the strong real estate growth in South India to economic expansion, infrastructure, and thriving auto manufacturing and IT sectors.

The group is investing Rs 225 crore to launch 2 million sq. ft. of Grade A workspaces by 2025, addressing a strong post-pandemic demand in Bengaluru.

Puravankara said the GCCs, engineering companies, and startups are expanding their current operations and looking for assets with the highest levels of ESG metrics. The southern market contributes about 60 per cent of India's business with Bengaluru being the largest market.

The company is currently in advanced talks with large MNCs and domestic companies for leasing their assets.

According to Mindspace Business Parks REIT CEO Ramesh Nair, Mumbai’s Mindspace Business Parks REIT forecasts vigorous growth in South India's commercial real estate market, notably Hyderabad, fuelled by demand from GCCs. "At Mindspace Madhapur, 57 per cent of leasable space is occupied by GCCs, with rising interest from domestic sectors. Mindspace Madhapur houses companies such as Cognizant, JP Morgan, Verizon, L&T and Qualcomm, among others," he said.

For RMZ, South India continues to be an important part of its overall expansion strategy.

“The assets in Bengaluru, Hyderabad and Chennai have witnessed significant interest and leasing. We are evaluating multiple opportunities for future assets. RMZ will continue its strong hold in these markets, while it amplifies its presence Pan Indian and in alternative assets,” said Thirumal Govindraj, CEO, RMZ Office and RMZ NXT.