Delhi, 19th November 2024: The third quarter of 2024 saw a significant shift in office space demand, with the BFSI (Banking, Financial Services, and Insurance) and Flex Spaces sectors emerging as the key drivers. These sectors together accounted for 39% of the total office space absorption across India, marking a 20% increase from the previous quarter. In contrast, the share of the IT-ITeS (Information Technology and Information Technology-enabled Services) sector dropped from 38% in Q2 2024 to 23% in Q3, signaling a potential shift in the demand-supply dynamics of the office space market.
The overall absorption in Q3 2024 reached a record 18.61 million square feet, making it the highest quarterly absorption for the year. This marks a 17% increase year-on-year and a 9% rise compared to the previous quarter. The strong growth in demand can be attributed to India’s robust GDP growth, which has outpaced many major global economies, attracting multinational companies to lease new office spaces or expand their existing footprints.
Despite global uncertainties, including geopolitical tensions in the Middle East, the Indian office market has seen a steady uptick in both absorption and supply. New office space completions rose by 3% over the previous quarter, totaling 12.80 million square feet in Q3 2024. However, the pace of new construction has slowed, with a 4% decline compared to the same quarter last year.
With strong absorption and healthy supply, vacancy rates across India’s office markets dropped by 90 basis points, falling to 14.8% in Q3 2024. However, despite the decrease in vacancy rates in major cities, average rental rates remained relatively stable across most markets.
City-Wise Highlights
- Bengaluru remained the top performer, accounting for 36% of the total office space absorption in Q3 2024, a sharp increase from 25% in Q2 2024. The city absorbed 6.63 million square feet, a rise of 56% compared to the previous quarter. The city also saw the highest rental appreciation, with rents rising by 1.1%.
- Hyderabad followed with 2.79 million square feet of absorption, though its demand decreased by 18% from the previous quarter. The city also led in new completions, with 4.10 million square feet of office space delivered, up 41% from the previous quarter.
- NCR (National Capital Region) saw a remarkable 118% quarter-on-quarter increase in office space absorption, primarily driven by a surge in demand from Flex Spaces, which helped boost its absorption to 2.49 million square feet.
- Chennai and Mumbai showed less impressive numbers in terms of absorption and construction. Chennai saw no year-on-year growth in absorption and a 29% drop in new completions. Mumbai, on the other hand, experienced a significant slowdown, with absorption dropping by 34% and new completions down by 73%.
- Pune reported strong growth in absorption, rising 112% year-on-year to 2.33 million square feet, though it saw a 19% decrease compared to Q2 2024.
Trends and Outlook
- The southern cities—Bengaluru, Chennai, and Hyderabad—continued to dominate the market, together accounting for 61% of the national absorption, up from 55% in the previous quarter.
- Bengaluru saw a substantial increase in its share of absorption, rising to 36% from 25% in Q2 2024, while the share of Mumbai fell from 20% to 12% during the same period.
- Vacancies in cities like Bengaluru and Pune remained low, with single-digit vacancy rates of 8.2% and 7.2%, respectively, reflecting strong demand in these markets.
The office space market in India continues to evolve, with a clear shift toward sectors like BFSI and Flex Spaces driving demand. This trend, coupled with increasing construction activity in select cities, suggests that the market will remain dynamic in the coming quarters, with opportunities in both established and emerging locations.
Also Read: Real Estate Demand Soars in India’s BFSI Sector, Projected to Break 2023 Leasing Records in 2024
