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Office realty market seeing strong growth amid ‘Return to Office’ trends, may beat 2019 record

The office realty market has been on a strong growth trajectory and could well be touching the historic-high of 2019 by the year’s end with some large deals being signed recently.

As per Cushman & wakefield, the top eight office real estate markets across India, the gross leasing volume (GLV) is expected to reach nearly 68 MSF by year-end, a historic high level only witnessed in 2019.

Pan India GLV has already reached 55 MSF as of YTD 2022 surpassing the cumulative leasing volumes for the whole of last year. Pan India GLV stood at 17.7 MSF in Q3, a 23% growth on an annualized basis, thereby maintaining healthy momentum witnessed in the last couple of quarters.

Mumbai, Delhi-NCR, and Bengaluru witnessed the largest transaction volumes in Q3 and collectively contributed around 64% of total GLV for the quarter. As of YTD 2022, Mumbai’s GLV stands at ~l10.6 MSF, followed by Delhi-NCR at ~10.2 MSF and Bengaluru at 13.1 MSF.

“2019 was a record year for the Indian CRE office sector and after considering the current gross leasing volume it is likely that the office sector will be close to the 2019 levels. There has been a supply addition of 44 MSF, which is 15% higher than the entire supply of 2021 put together. The percentage of employees returning-to-office, the surge of demand and the performance of Indian economy despite global headwinds will provide a lot of traction to the real estate sector in the quarters to come,” said Anshul Jain, Managing Director, India & South East Asia, Cushman & Wakefield, commented.

Owing to this demand surge, developers had the confidence to bring new supply into the market. Q3-22 witnessed the largest supply addition in recent history (of 10-11 quarters), with 15.5 MSF of cumulative supply addition across top-8 cities in India. The study has also considered the Grade A office stock across these cities, which is approx. 671 MSF as of Q3-22.

Despite the uncertainty surrounding the global economy driven by military conflict in Europe, supply chain disruptions and rising inflationary pressures, the Indian office market’s outlook remains optimistic. While a certain degree of caution is warranted in the near term given the macroeconomic turmoil, fundamentals of the office market are sound.

Positive hiring sentiment across sectors and ‘return to office’ trends are some of the key contributing factors to the healthy office space take-up at present. The IT-BPM sector accounted for the largest share in gross leasing volumes of 4.8 MSF which is 28% during the quarter, followed by BFSI, Flex space, Engineering & Manufacturing sectors at ~2.5 MSF each.

Surge in demand from established companies and the flourishing start-up ecosystem, coupled with new hybrid culture positively impacted the flex space take-up. From approx. 35,000 seats take up in 2019, the number rose to around 85,000 seats YTD 2022, almost equal to the absorption witnessed in the whole of 2021. Demand for co-working or managed spaces continues to remain high. Flex space operators saw nearly 30,000 seats taken-up by occupiers during the third quarter.

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