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

Office market surges: The office market in the country exhibited resilience and growth in the 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 the corresponding period in 2023. However, this quarter saw a 31 per cent decline in absorption compared to the previous quarter, which peaked in Q4 2023.

Southern cities dominate

Southern cities, including Bengaluru, Chennai, and Hyderabad, emerged as the powerhouses of office space absorption, accounting for 61 per cent of the 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 Hyderabad witnessed a 51 per cent increase. Conversely, other cities experienced declines in absorption over the same period.

The IT-ITeS sector continued to dominate absorption, capturing a 47 per cent share, followed by the BFSI sector at 11 per cent. Additionally, 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 the future, stating, "2024 started on a positive note as major office markets of India witnessed sustained absorption activities." He stressed the potential for a resurgence in demand for office spaces driven by "Return to Office" mandates amid global headwinds.

Bengaluru leads construction

New completions in the 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 Hyderabad with nearly 2.5 million sq ft. However, new completions declined by 27 per cent compared to the previous quarter.

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

Rental values rise

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

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