India's office market is set for growth in 2025, driven by global economic recovery, demand from Global Capability Centers, and expanding REITs. Key cities like Bengaluru and Hyderabad will see strong absorption, fueled by hybrid work models, ESG focus, and the growing startup and manufacturing sectors, ensuring a positive outlook.
In 2014, the office space market saw 48.1 million square feet of new office supply, reflecting a modest 1 per cent year-on-year change. The southern markets continued to hold a dominant share, contributing 58 per cent of the total new supply, although this was a slight decrease from their 2023 share of 62 per cent.
On the demand side, net office absorption reached 50 million square feet, marking a 29 per cent YoY growth, with Bengaluru and Hyderabad leading the charge. Bengaluru recorded 14.9 million square feet of absorption, representing a 34 per cent YoY growth, while Hyderabad saw 7.5 million square feet absorbed, up by 7 per cent. These two cities collectively accounted for 45 per cent of the total absorption, while Chennai also saw a 31 per cent YoY increase, reaching 5 million square feet. The office market vacancy rate stood at 16.5 per cent, a 1.3 per cent decrease YoY.
Kolkata experienced the most significant drop in vacancy, falling by 5.7 per cent, from 23.8 per cent to 18.1 per cent, while Hyderabad had the highest vacancy rate at 26.5 per cent, marking a 1.3 per cent increase from 2023. Large office space transactions (>0.1 million square feet) led the leasing market, making up 53 per cent of the total deals, reflecting a 2 per cent increase from 2019.
Smaller transactions (<0.05 million square feet) declined from 30 per cent in 2019 to 26 per cent in 2024. Average office rentals saw a 5 per cent YoY increase, reaching Rs 86 per square foot per month, with Mumbai Metropolitan Region (MMR) continuing to have the highest rentals at Rs 140 per square foot per month, followed by Bengaluru at Rs 93 per square foot per month.
The IT/ITeS sector remained the largest contributor to office leasing, accounting for 28 per cent of the total share, although this represented a continued decline from 42 per cent in 2019, driven by global technology spending constraints and the industry's shift to hybrid industry's
The year 2024 marked a significant milestone for India's office market across India's 7 cities, recording the highest net absorption since 2019. The market witnessed robust activity throughout the year, driven by strong occupier demand and strategic expansion plans for various sectors.
A notable highlight was the net office absorption of nearly 50 Mn sf, with southern office markets leading the charge by capturing 55 per cent of the total absorption, followed by western markets at 24 per cent and NCR at 19 per cent. The market fundamentals strengthened considerably in 2024, with average office vacancies dropping to 16.5 per cent from 17.8 per cent in 2023, despite the substantial new supply addition of over 48.1 Mn sf.
Among the top 7 cities, Chennai exhibited the strongest fundamentals with the lowest office vacancy of 9.3 per cent. The southern markets continued their dominant run, contributing 57 per cent of the new supply (approx. 27.7 Mn sf), while the western markets added 30 per cent, and NCR comprised 12 per cent of the overall new supply. A significant transformation was observed in the occupier mix during 2024. The IT-ITeS sector's share in the net office sector decreased to 28 per cent from its earlier dominant position of 42 per cent in 2019. However, this was effectively counterbalanced by the BFSI sector's expanded presence, from 7 per cent to 17 per cent, and the co-working sector maintained a strong 21 per cent share. The manufacturing sector also showed increased traction, growing to 15 per cent from 10 per cent in 2019, indicating a broader diversification of office space demand.
In terms of rental appreciation, southern markets outperformed other regions significantly. Bengaluru led with a 26 per cent rental growth since 2019, reaching Rs 93/sf/month, followed by Chennai at 25 per cent (Rs 75/sf/month) and Hyderabad at 20 per cent (Rs 67/sf/ month). The western markets showed moderate growth, with Pune at 19 per cent and Mumbai at 13 per cent, while NCR registered a 10 per cent increase in the same period. Overall, 2024 emerged as a transformative year for the office real estate market, characterised by robust absorption, strategic expansion by diverse sectors, and strong rental growth across major markets, particularly in the southern region.
