India is one of the world’s fastest-growing office space marketplaces, thanks to increased demand for office leases, the emergence of flexible office spaces, and the nation’s expanding start-up and IT industries. Across major cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Hyderabad, and Chennai), new office space supply in India reached 25.11 million square feet (sq. ft.) in the first half of 2021 (January-June 2021), up 75% year over year. This increase in supply was attributed to real estate companies’ increased confidence in the demand for workspace.
Investor optimism about a rapid economic recovery is being driven by the immunisation campaign’s brisk speed and the drop in COVID-19 cases. With the economy gradually opening up and employers moving offices to accommodate the growing demand for co-working space, developers are likewise optimistic about a strong resurgence in office leasing activity. According to JLL statistics, between January 2021 and June 2021, the supply of new office space increased in several important Indian cities. Bangalore, Delhi-NCR, Mumbai, and Pune are a few among them.
According to a JLL research, Bengaluru had a 2x surge in the supply of new office space in the first half of 2021, going from 3.35 million square feet in 2020 to 9.53 million square feet in January–June 2021. The area in Delhi NCR increased by 35 per cent year over year, going from 3.88 million square feet to 5.23 million. Hyderabad’s new office space increased by 3 per cent year over year, from 3.73 million square feet to 3.84 million square feet. Mumbai’s office space increased from 2.29 million square feet to 4.73 million square feet. Between January 2020 and June 2020, Pune had a 2x increase, going from 0.6 million square feet to 1.28 million square feet.
New And Upcoming Office Spaces
According to a JLL research, 13.43 million square feet of new office space was completed in the first quarter of 2021, an increase of 5% over the fourth quarter of 2020. In comparison to 8.6 million square feet in the first quarter of 2020, new completions in key cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Hyderabad, and Chennai) grew by 56 per cent year over year. Additionally, new completions in the first quarter of 2021 were higher than the 13 million square feet each quarter on average reported in 2019.
India’s need for offices is anticipated to be driven by the IT industry.
The demand for leased office space in Asia-Pacific (APAC), including India, is reportedly driven mostly by IT companies, which Colliers estimates will account for 20 to 25 per cent of all demand over the next five years. According to the survey, Bengaluru is among the top five locations for occupiers, with a strong infrastructure and talent pool, and is positioned to provide proprietors with future growth and investment opportunities. Hyderabad is also becoming a new IT hub, which will improve India’s real estate growth prospects. Additionally, the micro-markets of Gurugram’s Golf Course Extension Road and Noida Expressway in Delhi-NCR have been featured among the top 10 evolving submarkets.
Business process outsourcing (BPO) dominates the office scene in India. After COVID-19, the market is predicted to experience expansion in space at a rate of between 100 and 120 square feet per person, according to the Colliers assessment.
Opportunity
These office spaces are a significant investment opportunity
Grade-A office space was estimated to be 642 million square feet in 2020 in the top seven Indian cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Hyderabad, and Chennai). Mumbai, Delhi-NCR, and Bengaluru together accounted for 64% of the total office space. 28 per cent of these structures are older than ten years and now need contemporary facilities like newer structures. The JLL analysis estimates that adding contemporary amenities to these buildings will unlock an investment value of almost Rs. 5,500 crores (US$ 739.64 million). The continuing epidemic has altered worker expectations for comfort and safety at work. In light of this, the market for office space is anticipated to experience a change in the construction of continuing buildings for the modernization and upgrading of amenities.
Flexibility in office spaces
The CBRE estimates that India’s flexible office space, which was 36 million square feet in 2020, would increase at a rate of 10 to 15 per cent over the subsequent three years (until 2023), driven by a rise in the demand for hybrid space and city growth. To maintain flexibility at workstations and increase corporate profitability, firms also want to access alternate work models. The availability of flexible office space options and opportunities are projected to generate growth in the demand for physical office space in the upcoming years, according to the research.
Bengaluru has 11.6 million square feet of flexible office space in the first quarter of 2021, followed by Hyderabad with 5.7 million square feet and Delhi-NCR with 6.6 million. Along with market growth in Delhi-NCR, Mumbai, and Bengaluru, it is anticipated that demand for flexible workspace would rise in cities like Pune and Chennai in the upcoming years.
Major developments
India’s office space industry had a lot of innovation in 2021. The creation of world-class office space architecture, leveraging strategic partnerships for modernization, and investments in office space growth were among key milestones. The following are some of the major developments:
- The US-based real estate firm Hines teamed up with Goel Ganga Corporation in June 2021 to construct a 2.4 million square foot (sq. ft.) grade-A office building in Pune at a projected cost of Rs. 1,200 crores (US$ 161.38 million).
- For the creation of a cutting-edge parking experience at its office campuses, Smartworks, a managed office space provider, chose Park+, an automated smart parking solutions provider, in June 2021.
- A worldwide alternative investment firm called Värde Partners stated in April 2021 that it will invest US$155 million in the construction of two grade-A offices in Hyderabad.
- The Canada Pension Plan Investment Board announced in April 2021 that it will invest US$ 210 million in the construction of office buildings in Chennai and Hyderabad as part of a joint venture with the builder RMZ Corp.
- Embassy REIT stated in February 2021 that it will invest Rs. 2,300 crores (US$ 309.30 million) to construct 5.7 million square feet of office space in India.
- Microsoft opened its new India Development Center (IDC) in Noida in January 2021. The Taj Mahal served as inspiration for the design of the new office building.
Future outlook
Savills India projects that office space absorption in India’s key cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Hyderabad, and Chennai) would expand by 22 per cent YoY to 41.3 million square feet in 2021. Bengaluru is anticipated to dominate the market in 2021 with a projected 14 million square feet of absorption, led by increased trust among corporate tenants in the area. The city’s strong innovation sector and diverse skill pool also contribute to the city’s robust demand. Mumbai is anticipated to have the biggest YoY rise in leasing activity, going from 2.9 million square feet in 2020 to 5.5 million square feet in 2021.
Major expected growth trends for major cities are:
- Bengaluru’s absorption is anticipated to rise by 20–30 per cent in 2021. Also anticipated is a 20–30% YoY growth in incremental supply. Large acquisitions (>100,000 square feet in area) are anticipated to account for a sizable portion of the anticipated leasing.
- In the second half of 2021, office leasing in Mumbai is predicted to increase by 85% to 90%. It is anticipated that industries like BFSI and technology occupiers would increase demand.
- The Delhi NCR market is anticipated to have a 20–25 per cent increase in leasing in 2021, with the majority of the growth anticipated in the second half of the year. The demand is anticipated to be driven by office tenants from important industries including manufacturing, BFSI, technology, consultancy, and technology. Additionally, there is a strong pipeline of anticipated new supply for an area of around 8.5 million square feet, of which >65 per cent is anticipated to be realised in Gurugram and the balance in Noida. This bodes well for the Delhi NCR market.
- Hyderabad’s office market is anticipated to rise by 25 to 30 per cent in 2021, propelled by anticipated lease activity from the IT sector. The increased demand is anticipated to cause a slight upward trend in rentals in 2021.
- According to Savills India’s predictions, leasing activity in Chennai’s office market is anticipated to expand by 5 to 10% YoY in 2021. In Chennai, new construction is anticipated to total 5.6 million square feet, representing a 54 per cent YoY increase in supply.
- In Pune, the office market, absorption is anticipated to rise by 30 to 40 per cent in 2021. The tenants are anticipated to prioritise prime locations including Baner, Belawadi, Kharadi, and Viman Nagar. Pune is predicted to see 5.6 million square feet of new construction completed in 2021, a 300 per cent YoY increase in supply compared to the 1.4 million square feet of completion in 2020.
Final words
The real estate market is anticipated to continue to strengthen in 2021 as a result of optimistic investor attitudes and increasing occupier interest. Government measures that promote the market and greater economic activity also benefit it. Various corporate occupiers are going to revive their expansion projects as the COVID-19-imposed limitations and lockdowns gradually lift as more workers are anticipated to return to their workplaces and business is anticipated to perk up.
