Office absorption soars in India: Which city led the 13% workspace boom?

Office market surges: office market in country exhibited resilience and growth in first quarter of 2024, with absorption soaring to 13.40 million square feet (sq ft). This surge represents a substantial 13 per cent year-on-year (YoY) increase from corresponding period in 2023. However, this quarter saw a 31 per cent decline in absorption compared to previous quarter, which peaked in Q4 2023.

Sourn cities dominate

Sourn cities, including Bengaluru, Chennai, and Hyderab, emerged as powerhouses of office space absorption, accounting for 61 per cent of pan-India absorption in Q1 2024, up from 54 per cent in Q1 2023. Notably, Chennai and Mumbai saw absorption more than double within a year, while Hyderab witnessed a 51 per cent increase. Conversely, or cities experienced declines in absorption over same period.

IT-ITeS sector continued to dominate absorption, capturing a 47 per cent share, followed by BFSI sector at 11 per cent. ditionally, flexible spaces garnered attention from large conglomerates, constituting 8 per cent of pan-India absorption in Q1 2024.

Shrinivas Rao, CEO, Vestian, expressed optimism about future, stating, "2024 started on a positive note as major office markets of India witnessed sustained absorption activities." He stressed potential for a resurgence in demand for office spaces driven by "Return to Office" mandates amid global hewinds.

Bengaluru les construction

New completions in office market followed a similar trend, witnessing a 26 per cent YoY increase, reaching 10.8 million sq ft in Q1 2024. Bengaluru led in new completions with 3.7 million sq ft, followed by Hyderab with nearly 2.5 million sq ft. However, new completions declined by 27 per cent compared to previous quarter.

Despite decline in new completions, slight improvement in occupancy levels across country was notable, with vacancy rate currently standing at 13.8 per cent. This is expected to furr improve in second half of 2024, driven by increasing prominence of "Back to Office" mandates.

Rental values rise

Rental values across top seven cities experienced appreciation in range of 2.4 per cent to 6.8 per cent over previous year, propelled by sustained absorption activities and limited new completions. Pune witnessed highest annual increase in rentals, attributed to robust demand from manufacturing and engineering sector.

Rao highlighted bullish sentiment amongst domestic investors towards India's growth story, indicating potential significant contributions to future growth of office spaces in country.