Office Space Absorption Surges Across 4 Top Cities in Q1, Chennai Declines

Introduction

Bengaluru, Hyderabad, Delhi-NCR, and Mumbai are the major Indian cities that show a drastic office space demand each year. Following them are cities like Chennai and Pune that are yet another growing corporate hub in the country. The beginning of 2024 showcased a tremendous surge in office space absorption in the top 4 cities. The market reported a total of 35% year-on-year increase where total leasing of 13.6 million sq ft. was recorded across the top 6 cities including Bengaluru, Hyderabad, Delhi-NCR, Mumbai, Chennai, and Pune.

The first quarter of 2024 has showcased fluctuating stats regarding office spaces in various cities. While 4 major cities in India experienced high growth, office space in Chennai reported a decline in the same. Let us explain in detail the major reasons behind the surge and decline of office spaces in various Indian cities.

Office Space Demand Surges in 2024

The first quarter of 2024 is already over, and office space demands have set new demand records. With a significant demand for office space in Bangalore, Hyderabad, New Delhi, and Mumbai, the CRE sector in India has seen a maximum absorption rate recently in these major Tier-1 cities.

According to a report, Hyderabad estimated an office space surge of more than 2.3 million square feet. This was more than twice the increase in its recent office space demands a year ago. No wonder Hyderabad is becoming a prominent hub for businesses to lease fully-furnished and tech-enabled managed workspaces.

Similarly, Mumbai is also expecting a surge of 90%, i.e. from 1 million sq. ft. to 1.9 million sq. ft. Bengaluru. Also, Delhi-NCR is also expecting more demand for office spaces as recorded in the first quarter of 2024. Chennai, which is another major corporate hub in India, recorded a downfall of around 6% from 1.6 million sq. ft. in March to 1.5 million sq. ft.

In the first quarter of the year, the top 6 cities of the country accounted for around 58% of the total leasing activity. These stats could very well predict that the upcoming year will be full of healthy demand-supply dynamics.

Sectors Responsible for Surge in Office Spaces

There have been various sectors responsible primarily for the growth of office space demands in the first quarter of the year. Earlier it was Tech only that used to dominate the leasing activity but with time and awareness, other sectors are also showing great intent towards managed and flexible workspace solutions.

The Engineering and manufacturing sector played a major role in this, soaring over 2.3x times as compared to the previous year at 2.8 million square feet. However, the top 4 cities of India were the ones that were primarily responsible for this massive absorption.

Bengaluru alone contributed to about 55% of the activity. Along with this, a major chunk of office space absorption in Bangalore was also under BFSI. These sectors contributed around 14% along with Flex spaces contributing around 13% share of the overall leasing activity during the first quarter of 2024.

Occupancy Rises Due to Limited New Supply

Due to a rise in office space absorption in the top cities of the country, the construction of new commercial real estate facilities has also spiked in these Tier-1 cities. According to a report, there was a 26% increase recorded reaching around 10.8 million square feet in Q1 2024.

Once again, office space in Bangalore and Hyderabad were the core members of the new completions with around 3.7 million square feet and 2.5 million square feet of new supply respectively.

However, the office absorption rate around the country has been at a more rapid rate as compared to new completions. This has ultimately led to a high occupancy level across the country. The current national vacancy rate in India was recorded to be around 13.8%. With the rapid occupancy of the new completions, the vacancy rate is expected to decrease even further in the other 3 quarters of 2024.

Conclusion

To sum up, the office space absorption rate has been directly impacting the rental rates, vacancy rate, and other major aspects in various cities of the country. While the top 4 cities of the country including Bengaluru, Hyderabad, Delhi, and Mumbai were the main components behind the surge in office space absorption, Chennai is also expected to come up with them in the other 3 quarters of 2024.

On top of that, pure-play managed workspace players like Smartworks will continue to adapt to the changing preferences of both employers and employees. These flex space operators are transforming the look, feel, and experience of offices in India. So, the time has come to switch from conventional setups and look for fully furnished managed and flexible office spaces to unlock the true potential of your business.