India’s Office Space Demand Set To Surge: Engineering & Manufacturing And BFSI Sectors To Drive Major Growth

India’s Office Space Demand Set To Surge: Engineering & Manufacturing And BFSI Sectors To Drive Major Growth

India’s office space demand will continue to scale up, especially driven by shifts in demand characteristics. The demand that was once dominated by the technology sector, is now diversifying to encompass occupiers from multiple sectors, such as engineering & manufacturing (E&M), BFSI, healthcare, consulting and flex spaces as well.

Bhalchandra ChorghadeUpdated: Saturday, September 14, 2024, 07:21 PM IST
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India Office Space Demand Surge: E&M, BFSI Lead | Representational Image

India’s office space demand will continue to scale up, especially driven by shifts in demand characteristics. The demand that was once dominated by the technology sector, is now diversifying to encompass occupiers from multiple sectors, such as engineering & manufacturing (E&M), BFSI, healthcare, consulting and flex spaces as well.

Over the next three years (2025-27), engineering & manufacturing along with 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 three 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 recently.

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 Global Capability Centres (GCC) and domestic-origin occupiers continue to witness traction and will contribute to demand expansion in the next 2-3 years. While the top six cities of Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune 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 centres, the report said.

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 with GCC demand likely to be on the upswing. Interestingly, GCCs reposition themselves as knowledge and innovation centres, and are likely to account for almost 40% of the Grade A office space demand in the next few years. 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 Managing Director, Office Services, India, Colliers, Arpit Mehrotra.

Going forward, as corporates increasingly implement decentralized work strategies, occupiers are likely to expand their offices in multiple locations with relatively smaller real estate footprint. Average transaction sizes can further decline to 35,000-40,000 in 2024 itself with volumes expected to further move upwards. Altogether, the office market is likely to witness an increase in mid-sized deals as compared to the growth in volume of small and large sized deals.

“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 and Thiruvananthapuram,” Senior Director & Head, Research, Colliers India, Vimal Nadar said.

Overall, with commercial real estate in India being increasingly defined by sustainability and quality, the report anticipates multiple opportunities for developers and investors to lead in sustainability and meet evolving occupier preferences. Looking ahead, nearly 80% of the 160 mn sq ft of upcoming supply over the next three years is expected to be green certified, underscoring the shift towards more sustainable real estate development.

Co-Founder of PropFina, Nitin Singhal said, "India’s office space demand is poised for significant growth, driven by NITI Aayog's "Vocal for Local" initiative, the Sustainable Development Goals (SDGs), and the global China+1 strategy. It has positioned India as a key player in global supply chains, while Make in India and the focus on SDGs, particularly sustainable industrialization (SDG 9), are fostering demand for ESG-compliant office spaces. Despite potential global economic uncertainties, India's policy support and sustainable growth agenda are expected to drive resilient office space demand in the long term."

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