GCCs are likely to account for almost 40% of the demand for Grade A office space in the next few years in India: Colliers – RICS Report

GCCs are likely to account for almost 40% of the demand for Grade A office space in the next few years in India: Colliers – RICS  Report

·        Engineering & manufacturing and BFSI occupiers to cumulatively account for ~40% of demand during 2025-27

·       Repositioning of GCCs as knowledge & innovation hubs will drive ~40% of annual office space demand

·       Bengaluru dominates demand across most sectors; Hyderabad, Chennai & Pune to gain ground

·       BFSI occupiers to prefer premium developments, while engineering & manufacturing occupiers are likely to remain cost conscious while expanding real estate

Bengaluru, 12 September 2024: India’s office space demand will continue to scale up, especially driven by shifts in demand characteristics. The demand that was once dominated by technology sector, is now diversifying to encompass occupiers from multiple sectors, such as engineering & manufacturing, BFSI, healthcare, consulting and flex spaces as well. Furthermore, the evolving occupier landscape has deepened the office market in terms of developer offerings too. Developers are increasingly agile in curating the built structure to suit occupier preferences. Thus, the overall office market has gradually matured from a “Supply-led” market to a more “Occupier-driven” market and is likely at a turning point to see heighted growth and scaling up over the next few years. Demand from GCCs and domestic-origin occupiers continue to witness traction and will contribute to demand expansion in the next 2-3 years. While the top 6 cities will continue to drive contours of commercial real estate in India, newer markets, especially tier II cities, are expected to emerge as high potential growth centers.

Over the next three years (2025-27), engineering & manufacturing and BFSI occupiers are expected to lease about 11-12 mn sq ft of office space each on an annual basis, up from 8-9 mn sq ft each in the past 3 years. These will together account for about 40% of the total office space demand, according to Colliers’ latest report “The Multifaceted Occupier Landscape of India Office Market” released at the RICS CRE FM conference in Bengaluru. On the other hand, space uptake by technology firms will eventually stabilize at around 15 mn sq ft as they continue to embrace hybrid and distributed working models. Additionally, flex space occupiers are likely to expand into newer geographies, accounting for 15-20% of total office leasing in the next 2-3 years.

Leasing trends across key sectors

Sector	Share in Gross Leasing (%)			Average annual leasing (mn sq ft)
	Before 2022	2022-24*	2025-27F	2022-24*	2025-27F
Technology	41%	27%	24%	15.4	15.0
Engineering & Manufacturing	10%	16%	20%	8.8	12.0
BFSI	13%	17%	18%	9.4	11.5
Flex Spaces	13%	15%	17%	8.3	10.5
Consulting	7%	8%	7%	4.5	4.6
Healthcare	4%	4%	5%	2.3	3.0
Others	12%	13%	9%	7.3	6.4
Total	100%	100%	100%	56.0	63.0

Source: Colliers

Notes: Data pertains to Grade A stock; Period before 2022 includes the average gross leasing in the previous years excluding pandemic years *Estimated leasing number used for full year 2024; Other sectors includes E-commerce, Consumables, Logistics etc

Gross leasing 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

 

“The paradigm of office space demand in India continues to evolve rapidly, and the pace has in fact become swifter in recent years. In the next few years, average annual space take-up by Engineering & Manufacturing and BFSI occupiers is expected to increase by 35% while tech demand is likely to stabilize. GCC demand too is likely to be on the upswing. Interestingly, as GCCs reposition themselves as knowledge and innovation centers, they are likely to account for almost 40% of the Grade A office space demand in next few years. At the same time, demand from domestic-origin occupiers will remain robust, with about 30% of the domestic-origin demand likely to come from flex operators. This broadening of demand base augurs well for major office markets across the country in the long-term.” said Arpit Mehrotra, Managing Director, Office services, India, Colliers.

Rationalizing transaction size and growing deal volume reflects adoption of distributed work models

Post-pandemic, average deal size across sectors have rationalized and was at around 43,000 sq ft. in 2023, a 11% dip compared to 2019 levels. At the same time, number of deals rose by 44% during the same period, indicative of the shifts in occupiers’ preference and adoption of for “Hub” and “Spoke” offices. The volume of flex space and engineering & manufacturing deals have particularly surged by over 70% in the post-pandemic period vis-a-vis the pre-pandemic era. Going forward, as corporates increasingly implement decentralized work strategies, occupiers are likely to expand their offices in multiple locations with relatively smaller real estate footprint. Average transaction sizes can further decline to 35,000-40,000 in 2024 itself with volumes expected to further move upwards.  Altogether, the office market is likely to witness an increase in mid-sized deals as compared to the growth in volume of small and large sized deals.

Bengaluru dominates most occupier sectors, while Hyderabad, Chennai, and Pune gain momentum.

While Bengaluru remains amongst the leading markets for Grade A office demand across sectors, cities such as Hyderabad, Chennai, and Pune are rapidly catching up and seeing heightened demand from flex spaces, BFSI and engineering & manufacturing firms. Some of the high performing micro markets such as SBD - Hyderabad have surpassed more prominent micro markets of Bengaluru in terms of office space take up by Technology sector. Other micro markets including OMR (Zone 1) in Chennai, Kharadi & Baner-Balewadi in Pune and Off SBD in Hyderabad have witnessed increased traction across key demand sectors, highlighting the evolving locational preferences of occupiers.

“The demand scale-up will be evident at a city level also. Amongst the top six cities, Bengaluru can potentially witness annual leasing activity closer to 20 mn sq ft, while Delhi NCR and Hyderabad are expected to see office space demand in upwards of 10 mn sq ft in the next few years. Mumbai, Pune and Chennai too are likely to witness annual demand uptick by 20-30%. Furthermore, we anticipate healthy traction in office markets of relatively smaller cities such as Bhubaneshwar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Thiruvananthapuram etc.” said Vimal Nadar, Senior Director & Head, Research, Colliers India.

Sectoral activity at city and micro market level

Sectors	Top 3 Cities	Most active micro markets
	Cumulative demand during 2019-2023 (mn sq ft)
Technology	Bengaluru – 24.0 mn sq ft Hyderabad – 16.9 mn sq ft Delhi NCR – 12.1 mn sq ft	o   Hyderabad SBD o   Outer Ring Road, Bengaluru o   Whitefield, Bengaluru o   Hyderabad Off SBD o   Noida Expressway
Engineering & Manufacturing	Bengaluru- 11.6 mn sq ft Chennai – 4.2 mn sq ft Delhi- NCR – 3.9 mn sq ft	o   Whitefield, Bengaluru o   North Bengaluru o   Outer Ring Road, Bengaluru o   Hyderabad SBD o   Chennai OMR Zone 1
BFSI	Mumbai – 9.3 mn sq ft Bengaluru – 6.1 mn sq ft Chennai – 4.2 mn sq ft	o   Outer Ring Road, Bengaluru o   Hyderabad SBD o   Navi Mumbai o   Kharadi, Pune o   Chennai OMR Zone 1
Flex spaces	Bengaluru – 7.3 mn sq ft Hyderabad – 5.9 mn sq ft Pune – 4.8 mn sq ft	o   Hyderabad SBD o   Outer Ring Road, Bengaluru o   Baner-Balewadi, Pune o   Whitefield, Bengaluru o   Hyderabad Off SBD
Consulting	Bengaluru – 4.4 mn sq ft Delhi NCR- 4.0 mn sq ft Mumbai – 2.7 mn sq ft	o   Outer Ring Road, Bengaluru o   Bengaluru SBD 1 o   Hyderabad SBD o   Hyderabad Off SBD o   Kharadi, Pune
Healthcare	Bengaluru – 3.2 mn sq ft Delhi NCR- 1.8 mn sq ft Mumbai – 1.1 mn sq ft	o   Outer Ring Road, Bengaluru o   Electronic City, Bengaluru o   Hyderabad SBD o   Golf Course Extn Road, Gurugram o   Whitefield, Bengaluru

Source: Colliers

Note: Data pertains to Grade A buildings in top 6 cities- Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.

Top 3 cities and top 5 micro markets are with respect to absolute leasing numbers during 2019-2023

Micro market definitions: Bengaluru SBD 1: Koramangala, CV Raman Nagar, IRR, Indiranagar, Old Airport road, Old Madras Road, Rajajinagar and others; Outer Ring Road stretches from Silk Board to Hebbal; North Bengaluru includes Yelahanka, Hebbal, Thanisandra Roa; Whitefield: Brookfield, Whitefield and Hoodi; Electronic city includes Electronic City phase I and II, Hosur road

Hyderabad SBD: Madhapur, HITEC City, Kondapur and Rai Durg; Hyderabad Off SBD: Gachibowli, Nanakramguda, Manikonda and Kokapet

Baner-Balewadi: Aundh, Baner, Bavdhan, Pashan

BFSI & consulting firms favor premium grade A buildings in major business hubs

BFSI and consulting occupiers are likely to continue prioritizing superior quality buildings in Central Business Districts (CBDs). Such occupiers are typically amenable towards paying a premium for marquee buildings with top-tier amenities in strategic locations or micro markets. Moreover, on account of real estate footprint optimization, Engineering & manufacturing firms typically prefer having central offices in prime locations and satellite offices in peripheral areas. On an average, rentals in micro markets preferred by leading BFSI occupiers are 44% higher than those preferred by engineering & manufacturing firms. Technology firms, meanwhile, are more evenly spread across central, suburban, and peripheral districts. On the other hand, flex operators tend to favor Secondary Business Districts (SBDs) for their strategic location, connectivity, and developed infrastructure.

Occupiers prioritize ESG considerations; ~75% of 2024 space take-up in green-certified buildings in 2024

In pursuit of meeting their overall ESG goals, occupiers across all industries are prioritizing green certified buildings, benefitting from tangible reduction in operational expenditures. With relatively higher adoption of sustainable elements by occupiers from Engineering & manufacturing, BFSI and technology sectors, more than three-fourths of 2024 demand is anticipated in green certified buildings.

Overall, with commercial real estate in India being increasingly defined by sustainability and quality, we anticipate multiple opportunities for developers and investors to lead in sustainability and meet evolving occupier preferences. Looking ahead, nearly 80% of the 160 mn sq ft of upcoming supply over the next three years is expected to be green certified, underscoring the shift towards more sustainable real estate development.

Green adoption across key occupier segments

Sector	Gross leasing % in Green Certified Buildings (YTD 2024)
Engineering & Manufacturing	82%
BFSI	78%
Technology	77%
Flex Space	69%
Consulting	62%
Healthcare	57%

Source: Colliers

Note: Data pertains to Grade A buildings in top 6 cities- Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune