Bengaluru & Hyderabad lead the pack; diversification into retail, warehouses, and even data centres on the horizon

If you have ever walked into a modern glass office building in Bengaluru, Hyderabad, or Mumbai, chances are that the space might be owned by a Real Estate Investment Trust (REIT). Now, according to global property consultant Colliers India, REITs are set to play an even bigger role in the coming years.

Colliers’ latest report says that REIT penetration in India’s office market can rise from the current 16% to 25–30% by 2030. Put simply, nearly one in every three premium offices in India could be owned by REITs within the next five years.

What are REITs and why should you care?

Think of a REIT as a stock market-listed basket of properties. Instead of buying an entire office floor or mall, retail investors like you and me can invest small amounts in a REIT, and in return, earn steady rental income. For developers, it’s a way to unlock cash from buildings they already own, and for investors, it’s a chance to earn from real estate without actually buying property.

India’s big opportunity: 500 million sq. ft. of REIT-worthy offices

At present, India has about 133 million sq. ft. of office space listed under four REITs, mostly in top cities. But Colliers estimates that another 371 million sq. ft. of Grade A offices can potentially be brought under future REITs — that’s nearly half of all premium offices in the country.

Bengaluru leads the pack with 24% of this additional stock, followed by Hyderabad at 19%. A large chunk — nearly 60% of REITable offices — is concentrated in Secondary Business Districts (SBDs) of India’s top seven cities.

Beyond offices: retail malls, warehouses, and even hotels

REITs in India are no longer just about offices. The existing portfolios already include 5 million sq. ft. of retail malls and 11 million sq. ft. of warehouses and logistics parks. Experts believe that in the future, REITs could also include hotels, student housing, senior living, rental homes, and even data centres.

This is exactly how global REIT markets like Singapore, Japan, and the US grew into multi-billion-dollar sectors.

High demand, strong tenants, steady income

So far, India’s REIT-backed offices have maintained occupancy levels of over 86%, despite global headwinds. Tenants include a mix of tech firms, banks & financial services, consulting, and flexible workspaces. These long-term leases ensure regular income for REIT investors.

“Office REITs in India are at an early growth stage, but with rising demand from global companies and steady rental growth, their share can reach 25–30% by 2030,” said Badal Yagnik, CEO, Colliers India.

The bottom line

For the average Indian investor, this means more opportunities to invest in property without buying it outright. With better regulations, sustainability push (86% of office REITs are already green-certified), and diversification across sectors, REITs are expected to be a key part of India’s financial markets by the end of this decade.

Also Read: Women Homebuyers on the Rise: 1.29 Lakh Residential Transactions Recorded in 2024, Growing 14% Annually

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After a period of subdued demand in 2020 and 2021 due to the pandemic, leasing activity bounced back vigorously, achieving all-time highs in Grade A office space uptake since 2022. Notably, core micro markets experienced even more pronounced growth, with rental increases reaching up to 25% over the same period.

While markets like Hyderabad and Pune recovered to pre-pandemic rental levels as early as 2022, cities such as Bengaluru and Chennai followed suit in 2023. Delhi NCR and Mumbai finally completed their recovery cycle in 2024, with Delhi NCR reporting the highest growth in average rentals at approximately 8.3%.

City-Wise Rental Trends

A detailed analysis reveals the following city-wise rental trends (in INR/sq ft):

• Bengaluru: 2019 – 94.5 | 2024 – 96.7 (+2.3%)
• Chennai: 2019 – 74.0 | 2024 – 77.8 (+5.1%)
• Delhi NCR: 2019 – 97.8 | 2024 – 105.9 (+8.3%)
• Hyderabad: 2019 – 73.4 | 2024 – 76.7 (+4.5%)
• Mumbai: 2019 – 143.3 | 2024 – 151.6 (+5.8%)
• Pune: 2019 – 75.8 | 2024 – 81.6 (+7.7%)

Micro Market Dynamics

Core micro markets have outperformed the overall city rental growth significantly. In Delhi NCR, areas like Golf Course Extension Road and Cyber City saw increases between 5-25%. Bengaluru’s Outer Ring Road and Whitefield witnessed a 5-10% rise, while other major micro markets in Chennai and Mumbai also reported gains of 10-20%.

Cumulative Demand and Supply

Over the past five years, the cumulative demand for Grade A office space across these six major markets reached 264 million sq ft, closely mirroring supply levels at 234 million sq ft. This balance has kept vacancy rates relatively stable. Mumbai and Delhi NCR reported significant drops in vacancy rates, while Hyderabad experienced an increase due to a historically high supply.

Market Outlook

Industry experts predict that average office rentals may continue to rise, with potential annual growth rates of up to 10% across key cities in 2024. As demand in Indian commercial real estate solidifies, a continued annual space uptake of around 60 million sq ft is expected.

“The recovery of the office market is a testament to the resilience of occupiers and developers alike,” said Arpit Mehrotra, Managing Director of Office Services at Colliers India. “The trajectory we’re seeing suggests a strong foundation for future growth in the sector.”

This recovery signals not only a return to form but also a promising outlook for the Indian office market moving forward.

Also Read: Survey Reveals 57% of Investors Favor Steady Rental Yields in Fractional Real Estate Ownership

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– Bengaluru & Mumbai record highest net absorption of 3.6 and 2.5 MSF respectively 

– Gross leasing volume crosses 20 MSF, registering a 33% increase y-o-y

– Bengaluru and Mumbai together hold 57% of share in total leasing volumes

The Indian office market continues its positive trajectory, registering a net absorption of 11.5 MillionSquare Feet (MSF) across top 8 cities in Q1-24, according to Cushman & Wakefield’s Q1 office data. This is the third-highest level recorded in the last five years, demonstrating a robust appetite for office space among businesses. Net absorption is a barometer of real demand or expansion of occupied space in the market. 

While this quarter’s net absorption was 38% lower than the exceptional Q4-2023, it was a 44% increase over Q1 2023, indicating continued space occupation by businesses. Bengaluru and Mumbai emerged as the leading markets, absorbing 3.6 MSF and 2.5 MSF of space, respectively. They were followed by Hyderabad at 1.6 MSF, Delhi-NCR at 1.5 MSF and Pune at 1.3 MSF, Ahmedabad and Kolkata at 1 MSF, and Chennai at .8 MSF.

According to the report, the Gross Leasing Volume (GLV) also remained robust at over 20 MSF, a 20% decrease q-o-q but a steep rise of 33% on y-o-y basis. Gross leasing volume, which factors in all leasing activity in the market, including renewal of contracted term by corporates, is an indication of overall market activity. This quarter’s figures signify a resilient market with sustained interest in office space. 

Nearly a third of the entire India GLV was recorded in just one city, Bengaluru (6.7 MSF), followed by Mumbai (4.8 MSF) with a share of one-quarter. The two cities combined had a share of over 57% in total leasing volumes for the first quarter. A significant contribution to Bengaluru’s healthy leasing volume was 4.8 MSF of fresh leasing activity, and the city accounted for 33% of total fresh space leasing across the top-8 markets. The city also received close to 2.0 MSF of pre-commitments during Q1-24, thereby making it the largest contributor amongst all.

In line with the trend seen in recent past, fresh leasing continues to dominate GLV with 72% share, with pre-commitments and term renewals taking-up the balance 28% in GLV. 

Among the sectors, IT-BPM and Engineering & Manufacturing sectors emerged as the major drivers of demand, contributing over 45% to the GLV. The BFSI and Flex Space leasing followed with ~17% and ~11% shares, respectively. 

Global Capability Centers (GCCs) took-up close to 4.5 MSF (~22% share in GLV) of office space in Q1, further consolidating the belief that this sector is having a positive influence on office market of India. 

The first quarter also witnessed close to 13 MSF of new supply, continuing the momentum of healthy supply from previous quarters. The cities that saw the biggest supply additions were Hyderabad (2.9 MSF), Bengaluru (2.9 MSF) and Delhi-NCR (2.8 MSF). These three, together accountedfor over 67% of total supply in top-8 cities. The new supply, coupled with strong absorption, led to a slight decline in the national vacancy rate to 18.1%. Notably, Mumbai’s supply-constrained market witnessed the sharpest vacancy rate drop by 1.22% points to ~17%. 

Rents across most cities exhibited a slight upward trend, reflecting the positive market sentiment and rising demand.

Commenting on the Q1 numbers, Anshul Jain, Chief Executive, India & Southeast Asia and Head of Asia Pacific Tenant Representation said, “The Indian office market is experiencing a robust momentum. We haven’t witnessed 20 MSF of leasing being recorded for two consecutive quarters in recent history. This strong performance may signal a shift and has the potential to become the new standard for the Indian market. The strong leasing, coupled with net absorption of 11.5 MSF– the third highest in the past five years (the previous being in Q4 2023 and Q2 2019) – signifies a surge in tenant interest for office space. As witnessed in the previous quarters, the impressive surge in office demand is primarily driven by fresh leasing. We are confident that a balanced supply pipeline and continued tenant demand will propel further growth in the Indian office market.”

Adding on to this, Veera Babu, Managing Director, Tenant Representation, India said, ” The tightness in vacancy rates, particularly in key markets lik​e Bengaluru, Pune, and Mumbai, is noteworthy. This trend persists despite new supply additions in most cities, indicating a strong and growing demand for office space. This could push occupiers to act proactively by pre-committing in the upcoming quarters, ensuring they secure the right space for their needs. Overall, the outlook for the office sector remains positive for the year ahead.”

Also Read: Office leasing surges by 35%

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·       Bengaluru drives 2023 demand with more than one-fourth share in gross leasing, followed by Delhi NCR & Chennai at around one-fifth share

·       Flex space leasing continues to grow, highest leasing in any year at 8.7 mn sq ft,

·       Large deals (>100,000 sq ft) accounted for 50% of 2023 demand; Space take-up by GCCs bounce back in Q4

·       50.1 mn sq ft of Grade A supply infusion in 2023 reflects strong developer confidence

·       Vacancy remained rangebound while rentals firmed slightly

Contrary to initial beliefs, 2023 India office market has culminated on a spectacular note with 58.2 mn sq ft of gross absorption across the top 6 cities. The last quarter of the year witnessed the highest-ever demand for office spaces in India, with all the three southern cities of Bengaluru, Chennai and Hyderabad registering best performance since the Covid-19 pandemic. While Bengaluru and Delhi NCR drove leasing activity during 2023, accounting for about half of the total demand of office space in India, Chennai made it to the top three list for the first time. Furthermore, with more than 2x leasing activity in 2023 as compared to 2022, Chennai breached all earlier highs and recorded 10.5 mn sq ft of gross absorption.

Trends in Grade A gross absorption (in million sq feet)

Source: Colliers

Note- Gross absorption: does not include lease renewals, pre-commitments and deals where only a letter of Intent has been signed.

Top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune

Note: Data pertains to Grade A buildings and Pan India includes cities mentioned above only

Top 5 deals- Q4 2023

Top 5 deals of 2023

Tech demand rationalizing amidst increasingly heterogeneous office space take-up

The contribution of tech sector in office leasing has been steadily decreasing from around 50% in 2020 to 25% in 2023. While demand emancipating from tech occupiers rationalized, the overall leasing activity continued to diversify. The sectoral contributions from BFSI and Engineering & Manufacturing sectors especially have almost doubled, increasing from 10-12% in 2020 to around 16-20% in 2023.  Interestingly, in 2023, leasing by Engineering and Manufacturing players (26% share) surpassed the demand emancipating from Technology firms (22% share) in the tech hub of Bengaluru.

Demand from Flex operators remained unabated; at 8.7 mn sq ft flex spaces uptake in 2023 was 24% higher as compared to 2022. Flex penetration in the Indian office market is expected to rise further in 2024, as developers are likely to adopt core plus flex strategy for decision making.

Demand Drivers 2023

Source: Colliers

Others include- FMCG, real estate, oil, gas and energy companies

“The Indian office market not only navigated initial uncertainties but exceeded expectations and emerged successfully, recording an impressive 58 mn sq ft of gross absorption during 2023. The demand momentum, particularly as seen during the last quarter, will pave way for an optimistic start to 2024. Notwithstanding unforeseen events, a stable economic outlook augurs well for Indian commercial real estate and office markets will continue to witness steady interest from domestic as well as foreign-origin occupiers. Increased preference of a combination of core and flex real estate space, heightened activity in tier II markets and next-gen offices with more sustainable elements will be the key themes for office markets in 2024.” says Arpit Mehrotra, Managing Director, Head of Office services, Colliers India.

Resurgence in large deals, as GCCs continue to expand their India footprint

After a brief pause, occupier confidence in business environment has translated into large office space requirements.  At around 30 mn sq ft., large deals (>100,000 sq ft) have shown an impressive 24% annual growth in 2023. Global Capability Centres (GCCs) typically have large space requirements, and they too resumed their expansionary activities with greater fervor towards the second half of 2023, especially in the fourth quarter. Almost 40% of the large deals in the top six cities have come from GCCs, particularly from technology and BFSI sectors.

“Large sized of 100,000 sq ft or more have contributed to almost 50% of the overall office space demand in India. Interestingly, more than half of the large GCC deals achieved closure in last quarter of 2023, indicating renewed momentum in GCC activity of the country. Large pool of talent, cost-effective rentals, adequate Grade A developments and favorable office market ecosystem will continue to uphold India’s vantage positioning from a capability centre perspective. Moreover, healthy demand from domestic firms across technology, BFSI, manufacturing, healthcare and flex spaces will result in equally strong demand of office spaces in 2024.” says Vimal Nadar, Senior Director and Head of Research, Colliers India.

Healthy supply infusion keep vacancy levels rangebound while rentals firm up slightly

With 50.1 mn sq ft. of new completions, fresh supply across the top six cities rose about 17% YoY, indicating higher developer confidence for near-term space uptake.  While Bengaluru accounted for 35% of the new completions in 2023, Hyderabad followed in closely with almost 30% share at an India level. Given strong performance on both demand and supply side, vacancy levels remained rangebound. Average rentals meanwhile increased by up to 5% across most Indian cities.

Trends in Grade A new supply (in million sq feet)

Source: Colliers

Source: Colliers

Note: Data pertains to Grade A buildings and Pan India includes cities mentioned above only

Also Read: Office sector sees robust demand with projected net absorption of 37-39 mn sq ft in 2023

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The office segment in India has been one of the fastest to recover from the impact of the pandemic. The recovery has been so phenomenal that India’s Grade A office market across the top seven cities is poised to grow to over 1 billion sq ft in size by 2026, said a JLL paper titled ‘Reimagining, Reinventing and Redefining Real Estate 2030’released today at the National Real Estate Development Council (NAREDCO), Maharashtra’s flagship event, The Real Estate Forum 2022 where JLL associated as a Knowledge Partner.

• Flex market to double its footprint across the top seven cities by 2025 to ~75 million sq ft; to cross the 100 million sq ft mark by 2030
• New supply of office space likely to be green-rated to an extent of 70-75% even as older projects look to upgrade and reduce their carbon footprint
• Mortgage to GDP ratio to touch 20% by 2030

In the post-Covid world, the flex space segment is expected to grow and be a mainstream occupier segment with operator-landlord partnerships creating superior office assets. As a result of the evolution to a more distributed work model, occupiers will look at strategies to not only make their portfolio more agile but also tap into the talent pool from emerging urban centers. The flexible space segment will play a key role in supporting occupiers’ growth strategies given the changing dynamics of portfolio optimization and employee needs. As such, the flex market is expected to double its footprint across the top seven cities by 2025 to ~75 million sq ft and cross the 100 million sq ft mark by 2030.

Karan Singh Sodi, Regional Managing Director, Mumbai & Ahmedabad, JLL said,

“Given the growth dynamics, India’s Grade A office market across the top seven cities is poised to grow to over 1billion sq. ft in size by 2026 and touch 1.2 billion sq ft by 2030. India will continue to remain the leader in technology outsourcing and will build on its gains as the biggest R&D and Global Capability Centre hub across financial services, software development, new technology, artificial intelligence, and machine learning. Also, with the country’s renewed focus on making itself a manufacturing hub, engineering and manufacturing firms will set up large R&D centers here, making its office market the most dynamic in the region. It has already proved itself as the global vaccine hub making it a healthcare and life sciences R&D leader. India may potentially account for over2/3rds of all occupier activity in the Asia Pacific region.”

The office and the residential segments in India have seen a very smart and sustained recovery in the past few quarters. With investor confidence back, as witnessed by the rise in total institutional investments in the Indian real estate segment, we are well poised to grow exponentially in the next few years. What is most heartening to witness is the occupiers’ focus on sustainability and green solutions to help reduce the carbon footprint.

Mr. Sandeep Runwal, President, NAREDCO Maharashtra & MD, Runwal Developers, said, “One of the highlights of the post COVID world has been the recovery of the office segment and this segment is expected to grow to over 1 billion sq ft in size by 2026 across seven cities which includes Delhi, Mumbai, Pune, Chennai, Kolkata, Bangalore, and Hyderabad. It’s an interesting development which we believe is an apt topic to focus on at the NAREDCO Maharashtra flagship event The Real Estate Forum 2022.”

Sustainability is the key to the future

India’s commercial Grade A office stock across the top seven cities has a 42% green-certification penetration. The penetration of green-certified buildings is likely to cross the 50% mark overall over the next decade. In fact, new supply is likely to be greenrated to an extent of 70-75% even as older projects look to upgrade and reduce their carbon footprint. With occupiers driving the green agenda and willing to pay a premium for such green buildings, affirmative action on net zero carbon pledges by occupiers will push the commercial office segment towards setting aggressive sustainability and net-zero carbon targets.

India’s listed REITs would be one of the leading markets in the Asia Pacific

The market capitalisation of listed REITs which stood at USD 8 billion currently is expected to grow manifold with the specialized REITs market developing in the next few years. This will also lead to increased retail participation. Consolidation of rent yielding assets across segments Institutional investments in rent yielding assets across segments will increase leading to higher consolidation of assets. Portfolio deals will become prominent.

Urban logistics grows on the back of e-commerce

The rise of e-commerce and the ‘within-15-minutes delivery’ has been the powerful engine for the growth of the urban logistics and in-city logistics story. Multi-story warehouses would also act as the next step in logistics for effective utilization of land at the last mile delivery locations as well as peripheral logistics. On-demand warehousing offers flexibility and agility to direct-to-consumer sellers to avail of order fulfillment or warehousing services as and when required. With an omnichannel focus, customers expect new alternatives such as buying online and pickup in-store or shipping from the store.

Also Read: Platform funds gain prominence with USD 1.9 billion announced during Q1 2022

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