The Resilient Indian Office Market & Impact of GCC

The Indian office space market has exhibited remarkable resilience in the first half of 2024, driven by a robust economy and a skilled workforce. Leasing activity has surged to 32.8 million sq. ft across major cities, marking a 14% year-on-year increase and the second-highest H1 peak since 2019. Bengaluru has emerged as the leading market in terms of space absorption, followed closely by Delhi-NCR and Chennai.

GCCs have emerged as a significant driver of office space demand, accounting for 41% of all leasing activity in Q2 2024. This trend is expected to continue throughout 2024, solidifying GCCs as a key driver of office space demand in India. The country's vast pool of skilled professionals, competitive cost structure, established business ecosystem and stable government have made it an attractive location for establishing GCCs.

Notably, Banking, Financial Services and Insurance (BFSI) firms and technology companies were the leading sectors within these GCCs, contributing to about 45% of their total leasing activity. Bengaluru has emerged as the preferred location for GCCs, followed by Pune, Hyderabad and Chennai.

Nationally, overall office leasing remained strong, with gross leasing reaching 32.8 million sq. ft during H1, showcasing a healthy increase compared to the previous year. This robust demand is met with a new wave of supply, with a total of 22.1 million sq. ft of new office space completed during the same period. The non-SEZ segment dominated development completions, reflecting a potential shift in tenant preferences.

Additionally, over three-fourths of these newly completed developments boast green certifications, highlighting a growing focus on sustainability within the Indian office space market. While technology companies continue to be a significant force, accounting for 29% of leasing activity in Q2 2024, a trend towards diversification is evident.

BFSI firms followed closely at 17%, with research, consulting & analytics (RCA) companies and flexible space operators each taking up 12% of the market share. Life sciences firms also emerged as a growing sector, capturing 9% of the leasing activity in H1.

The Indian office market is poised for robust growth in the second half of 2024, driven by sustained demand for quality office space. Over the next two years, 70% of occupiers plan to expand their office portfolio by 10% or more. This expansion is expected to be driven by a mix of traditional and flexible spaces, with 30% of respondents identifying flexible office space as their primary portfolio strategy.

The GCC sector, on the other hand, is expected to remain a key driver of office demand, with 67% of GCCs surveyed planning to increase their office portfolio by over 10% in the next two years. India's established ecosystem, competitive costs and skilled workforce make it an attractive location for GCCs, with an anticipated 20% increase by 2025.

The flexible workspace sector is also expected to grow, with a focus on sustainability, high-quality offerings and customisable solutions driving demand. By the end of 2024, flexible space stock is expected to reach 80 million sq. ft. Occupiers are prioritising employee experience, with 30% of respondents identifying incorporating employee wellness into workplace strategies as a critical focus area.

To drive enhanced experience, occupiers are consulting key stakeholders to rethink the purpose and design of the workplace. The second half of the year is expected to witness a consistent supply of high-quality office space, with Bengaluru, Hyderabad and Delhi-NCR leading project completions.

As employee experience takes centre stage, 'flight-to-quality' relocations/upgrades will continue to be on occupiers' agendas. Developers are shifting towards constructing state-of-the-art, green-certified office facilities equipped with amenities that cater to evolving business needs. The introduction of quality supply amidst limited availability is likely to drive rental growth in select micro-markets across the country. With a strong pipeline of investment-grade supply, the Indian office market is poised for significant growth in the second half of 2024.