India's office leasing market witnessed a robust momentum in Q2 2024, achieving a hat trick with over 20 msf since Q4 2023. This accomplishment underlines a strong recovery despite turbulent external factors. Key drivers of this positive trend include strong business sentiments, faster closures of large deals (<100,000 sf) by global multinationals, and higher precommitments in cities like Bengaluru and Pune.
Wave of Momentum
Bengaluru remains the primary market, significantly contributing to the fresh demand across India. The city’s strong performance is followed by Mumbai, with Delhi NCR and Hyderabad also reporting sturdy growth. The combination of strong fresh leasing, return-to-office mandates, expansion plans pushed up net absorption. The flex leasing also grew steady in H1 2024, with more than 100,000 seats transacted. This growth reflects the evolving preferences for flexibility and high-quality spaces.
The favorable economic outlook in India, combined with the recovering US economy, further boosts the office market. This positive economic environment encouraged businesses to commit to long-term leases and expansions.
Temporary setbacks, overall gains
Q2 2024 witnessed a decline in new supply, marking the lowest since Q1 2023. Pune and Chennai, for instance, saw no new supply in this quarter. Considering India’s demand and supply trends, and the lower supply in Q2 is likely a temporary anomaly. We anticipate supply to grow up in the coming quarters.
Active supply is expected to rise over 25 - 30 msf in H2 2024, driven by increasing demand for premium projects. While pan-India vacancies decreased in Q2 due to strong demand, the levels are likely to rise again due to the expected supply influx. Core markets have experienced tighter vacancies due to limited supply coupled with strong demand. While non-core markets have attracted tenants with lower rents, the increased supply in these areas has led to a slight rise in vacancy. However, average rentals across the cities have remained stable, with gradual appreciation in prime micromarkets and premium buildings. Occupiers are moving forward with renewals due to stable rentals.
With active demand of 45+ msf, Indian office leasing is likely to surpass last year’s figures and potentially achieve record highs. The recovery observed last year has accelerated, fresh demand has significantly increased, and space take-up for business expansion is expected to remain strong in the near to medium term.
Projections indicate a net absorption of 40+ msf this year, possibly becoming the highest across all regions. Robust demand is also expected to sustain the year, which we anticipate to cross 80+ msf (highest ever).
