Corporate decision delays drive 18-22% dip in Indian office space demand

The demand for office spaces in major Indian cities is expected to experience a decline of 18-22 per cent in the current calendar year, primarily attributed to the high base effect from the previous year and corporate delays in decision-making regarding expansion plans. According to a collaborative report by CREDAI and CRE Matrix, fresh leasing of Grade A premium office spaces in 2023 is estimated to be between 55-57 million square feet, excluding renewals. This marks a decrease from the 70 million square feet absorbed in the year 2022.

For the period of January to September 2023, leasing activities have already reached 41.8 million square feet across six major cities, namely Delhi-NCR, Mumbai Metropolitan Region (MMR), Bengaluru, Pune, Chennai, and Hyderabad. The IT/ITeS, Banking, Financial Services, and Insurance (BFSI), and co-working sectors have been major contributors, collectively driving two-thirds of the office demand at a pan-India level.

Office evolution insights

The report highlights that the Grade A office space stock stands at 770 million square feet by the end of the third quarter of 2023, with a vacancy level of 17.4 per cent. CREDAI National President Boman Irani commented on the evolving office market in India, noting the diversification of industries and the growth of modern workspaces, particularly with the increasing number of global capability centres.

Abhishek Kiran Gupta, CEO & Co-founder, CRE Matrix,  expressed optimism about the office market's long-term growth cycle, aligning with India's aspirations to become a $5 trillion economy by 2030. 

"We predict two trends in the near term -- formats such as managed spaces are likely to see double-digit growth rates as occupiers opt for convenience and employee-centric spaces," he said.

Secondly, Gupta noted that cities such as Pune, Noida, Navi Mumbai and Thane will pose as strong challengers to established office hubs of Mumbai, Bengaluru and Gurugram.

"We will see developers allocating more capital to these younger cities as lower talent costs, better infrastructure/connectivity and affordable housing attract larger office demand," he added.

City-wise trends and sectoral demands

The demand for office space during January-September 2023 was highest in Bengaluru at 10.5 million square feet, followed by Delhi-NCR at 8.6 million square feet. Other cities include Hyderabad (6.8 million sq ft), MMR (6.7 million sq ft), Pune (5.1 million sq ft), and Chennai (4.1 million sq ft). The IT/ITeS sector accounted for 35 per cent of office space demand, followed by BFSI at 17 per cent, and co-working at 14 per cent.

The report also highlighted the increased preference for flexible workspaces, especially in the aftermath of the COVID-19 pandemic. Companies are increasingly opting for flexible arrangements, with some even choosing not to renew traditional lease agreements in favour of co-working spaces, according to Amal Mishra, CEO of Bengaluru-based Urban Vault.

(With PTI Inputs)