India is one of the fastest-growing markets for office spaces in the world, driven by rising demand for office rentals, emerging flexible office spaces and growing start-ups & IT sector in the country. According to JLL India, in the first six months of 2021 (January–June 2021), new supply of office spaces in India reached 25.11 million square feet (sq. ft.), an increase of 75% YoY, across major cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Hyderabad and Chennai), due to improved confidence of realty companies for recovery of the workspace demand.
New office space supply (in million sq. ft.)
Source: Press Release, JLL India
Rapid pace of the vaccination drive backed by reducing number of COVID-19 cases are driving investor confidence in quick economic recovery. Developers are also confident of solid recovery in office leasing activity, with the gradual unlocking of economic activities and employer’s shift in office premises for rising demand for co-working space.
As per the JLL data, between January 2021 and June 2021, key cities in India recorded growth in terms of the new supply of office space.
New office space supply in key cities (in million sq. ft.)
Source: Press Release, JLL India
As per a JLL report, in the first six months of 2021, Bengaluru recorded 2x growth in the supply of new office space, increasing to 9.53 million sq. ft. in January-June 2021, from 3.35 million sq. ft. in 2020.
Delhi NCR recorded 35% YoY growth, from 3.88 million sq. ft. to 5.23 million sq. ft. The new office supply in Hyderabad recorded a 3% YoY growth to 3.84 million sq. ft., from 3.73 million sq. ft. The office supply in Mumbai more than doubled to 4.73 million sq. ft, from 2.29 million sq. ft. Pune recorded a 2x rise to 1.28 million sq. ft as against 0.6 million sq. ft between January 2020 and June 2020.
New office space completion on track
As per a JLL report, new office space completions in the first quarter of 2021 stood at 13.43 million sq. ft., up 5% over the fourth quarter of 2020. New completions across major cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Hyderabad and Chennai) increased by 56% YoY, compared with 8.6 million sq. ft. in the first quarter of 2020. Also, new completions in the first quarter of 2021 exceeded the average quarterly figure of ~13 million sq. ft. registered in 2019.
New office space completion (in million sq. ft.)
Source: JLL India
Tech sector is expected to drive office demand in India
According to Colliers, a property advisor, demand for office leasing in Asia-Pacific (APAC), including India, is significantly driven by tech firms, which account for an estimated ~20-25% of the total demand for leased office space over the next five years. According to the report, Bengaluru ranks among the top five markets providing solid infrastructure and available talent for occupiers and is well-placed to provide future developments and investment prospects for proprietors. Hyderabad is also emerging as a new tech centre and enhancing prospects of real estate growth in India. Also, in terms of tech occupiers, Delhi-NCR’s micro-markets of Noida Expressway and Golf Course Extension Road in Gurugram have been showcased among the top 10 evolving submarkets in APAC.
In India, office landscape is dominated by the business process outsourcing (BPO) sector. According to the Colliers report, post COVID-19, the market is expected to register growth in space at ~100-120 sq. ft. per person.
India’s ageing office spaces offer significant investment opportunities
According to a JLL report, grade-A office space in the top seven cities in India (Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Hyderabad and Chennai) stood at 642 million sq. ft. in 2020. Out of the total, Mumbai, Delhi-NCR and Bengaluru accounted for ~64% of the total office space. Of these buildings, ~28% are more than a decade old and now, require modern amenities like newer buildings. As per the JLL report, remodelling of these buildings with modern facilities offer an estimated Rs. 5,500 crore (US$ 739.64 million) untapped investment value. The ongoing pandemic has transformed worker expectations in terms of workplace safety and amenities. In line with this, the office space market is expected to witness a change in ongoing building development for modernisation and upgrade of facilities & amenities.
Rising flexible office space
According to the CBRE, flexible office space in India stood at 36 million sq. ft. in 2020 and is expected to grow at ~10-15% over the next three years (until 2023), driven by rising demand for hybrid space and expansion across cities. The businesses are also planning to access alternative work models to keep flexibility at workstations and improve business profitability. The report also revealed that the demand for physical office space is expected to increase in the coming years, driven by opportunity and availability of flexible office space offerings.
In the first quarter of 2021, the flexible office space in Bengaluru stood at 11.6 million sq. ft., followed by Delhi-NCR at 6.6 million sq. ft. and Hyderabad at 5.7 million sq. ft. In the coming years, along with expansion of the market in Delhi-NCR, Mumbai and Bengaluru, the demand for flexible workspace is also expected to increase from cities such as Pune and Chennai.
The office space market in India recorded many new developments in 2021. Key developments included investments for office space expansion, leveraging strategic partnership for modernisation and developing world-class office space architecture. Some of the key developments are as follows:
- In June 2021, Hines, the US-based realty company, partnered with Goel Ganga Corporation to build a 2.4 million sq. ft. grade-A office space in Pune at an estimated cost of Rs. 1,200 crore (US$ 161.38 million).
- In June 2021, Smartworks, a managed office space provider, selected Park+, an automated Smart Parking solutions provider, for developing a next-gen parking experience in its office campuses.
- In April 2021, Värde Partners, a global alternative investment company, announced to fund US$ 155 million for the development of two grade-A offices in Hyderabad.
- As part of a joint venture with builder RMZ Corp., in April 2021, Canada Pension Plan Investment Board announced to invest ~US$ 210 million to develop office complexes in Chennai and Hyderabad.
- In February 2021, Embassy REIT announced to invest Rs. 2,300 crore (US$ 309.30 million) to build 5.7 million sq. ft. office space in India.
- In January 2021, Microsoft launched its new India Development Centre (IDC) in Noida. The new office space architecture is inspired by the Taj Mahal.
According to Savills India, office space absorption in India across major cities (Delhi-NCR, Mumbai, Bengaluru, Pune, Hyderabad and Chennai) is expected to reach 41.3 million sq. ft. in 2021, an increase of 22% YoY. Bengaluru is expected to lead the market with an estimated absorption of 14 million sq. ft. in 2021, driven by improved confidence among corporate tenants in the city. Robust demand in the city is also driven by the availability of distinct talent pool and strong tech ecosystem. Meanwhile, Mumbai is expected to register the highest YoY growth in leasing activity, increasing to 5.5 million sq. ft. in 2021, compared with 2.9 million sq. ft. in 2020.
Major cities in India are expected to witness the following growth trends:
- In 2021, Bengaluru is expected to register an increase of 20-30% in absorption. Incremental supply is also expected to register a YoY increase 20-30%. Large deals (>100,000 sq. ft. area) are expected to establish a significant share of the projected leasing.
- Mumbai is expected to register ~85-90% growth in office leasing in the second half of 2021. The demand is expected to be driven by sectors such as BFSI and technology occupiers.
- In 2021, the Delhi NCR market is expected to register an increase of ~20-25% in leasing, with the majority movement expected in the second half of the year. The demand is expected to be driven by office occupiers from key sectors such as technology, consulting, BFSI and manufacturing. Also, outlook for the Delhi NCR market is bright due to the estimated robust pipeline of new supply for ~8.5 million sq. ft. area; of this, >65% is expected to be achieved in Gurugram and the remaining in Noida.
- In 2021, the office market in Hyderabad is expected to register ~25-30% growth, driven by expected leasing activity from the IT sector. Rentals are expected to record a marginal upward trend in 2021 due to the rising demand.
- As per Savills India forecasts, in 2021, the office market in Chennai is expected to register a YoY growth of ~5-10% in leasing activity. Chennai is expected to record ~5.6 million sq. ft. of new completions, which accounts for 54% YoY growth in supply.
- The office market in Pune is expected to record ~30-40% increase in absorption in 2021. The occupiers are expected to give preference to key areas such as Baner, Belawadi, Kharadi and Viman Nagar. Pune is expected to record ~5.6 million sq. ft. of new completions in 2021; this will account for 300% YoY growth in supply, compared with 1.4 million sq. ft. area of completion in 2020.
According to Mr. Anurag Mathur, CEO, Savills India, the office real estate market is expected to further improve in 2021, due to bullish investor sentiments as well as rising interest among occupiers. The market is also backed by supportive government reforms and improved economic activities. With gradual unlocking of the COVID-19-imposed restrictions and lockdowns, various corporate occupiers are planning to renew their expansion projects, as more and more people are expected to resume offices and businesses are likely to pick up.