India's Grade A Office Market Booming: Demand Expected To Hit 70 Million Square Feet In 2024
May 16th, 2024
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The Indian commercial real estate sector is experiencing a surge in demand for Grade A office space, with a projected total of 70 million square feet (msf) to be leased in 2024, according to a recent report by CREDAI in collaboration with CRE Matrix.
Strong Start to the Year
The first quarter of 2024 witnessed a notable surge in Grade A office space leasing, with a total of 16.7 msf leased across key Indian markets. This represents a 12 per cent increase compared to the previous quarter and a 14 per cent rise year-on-year.
Metro Cities Lead the Way
Bengaluru, Mumbai Metropolitan Region (MMR), and Delhi-NCR emerged as the frontrunners for Grade A office space demand, collectively accounting for nearly two-thirds of the national total. These top three cities experienced a significant 23 per cent growth in demand compared to the previous quarter.
Market Rentals on the Rise
Nationwide, market rentals for Grade A office spaces continued their upward trajectory, nearing the Rs 100 per square foot mark. The first quarter of 2024 saw an 8.7 per cent increase in rentals compared to the previous quarter. The report also highlighted a widening gap between market rentals and existing rental rates, indicating a strong landlord-centric market environment. Cities like Bengaluru, Pune, and Hyderabad witnessed a rise in rental rates during the quarter.
Larger Deals Drive Demand
A significant trend observed in the report is the increase in the number of larger leasing deals. In the first quarter of 2024, a substantial 56 per cent of the demand came from occupiers acquiring spaces exceeding one lakh square feet. This represents a significant rise from 36 per cent in the fourth quarter of 2023 and 33 per cent in the first quarter of 2023. Bengaluru, Hyderabad, and Noida emerged as the top destinations for these large-scale leasing deals.
IT/ITeS and BFSI Sectors Dominate Demand
The report identified the IT/ITeS sector as the dominant force driving office space leasing, accounting for approximately 28 per cent of the total demand. Meanwhile, the BFSI (Banking, Financial Services, and Insurance) sector also saw a rise in its share of leasing activity, increasing from 16 per cent and 13 per cent in the first and fourth quarters of 2023 respectively, to 20 per cent in the first quarter of 2024. Mumbai and Chennai were the key contributors to the BFSI sector's demand, accounting for half of the total. Within the IT/ITeS sector, Bengaluru remained the major player with 35 per cent of the demand, while Noida surpassed Hyderabad for the second spot, contributing 20 per cent of the demand in the first quarter of 2024.
Coworking Spaces Gaining Traction
The report acknowledged the growing importance of co-working spaces as an emerging asset class, contributing 10 per cent to the overall Grade A office space demand.
Optimistic Outlook for the Future
CREDAI president Boman Irani expressed optimism for the future of the Indian commercial real estate sector. He highlighted the confluence of strong economic fundamentals and significant investments in physical and digital infrastructure as factors that will propel pan-India Grade A office space demand to reach the projected 70 million square feet in 2024. He further emphasised the positive impact this growth will have on developers, corporates, and investors.
Shifting Landscape and Future Growth
Abhishek Kiran Gupta, CEO & Co-founder of CRE Matrix & IndexTap, predicts that as rental prices continue to rise in prime markets like NCR, Bengaluru, and Mumbai, there will be a shift towards larger deals happening in cities like Pune, Chennai, Hyderabad, and Noida. He anticipates that upcoming quarters will see an increase in office space completions, and with market rentals favouring landlords in key markets, leasing activity is also expected to grow. The new government's budget is anticipated to further boost the infrastructure and BFSI sectors, potentially keeping rental prices on an upward trajectory.
This robust demand for Grade A office space signifies a positive outlook for the Indian commercial real estate sector, driven by a resurgent economy, growing IT and BFSI sectors, and the increasing popularity of co-working spaces.
Source: timesproperty.com
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