The prospect of the office real estate market in India looks bright with robust activity expected in many cities across the country. At end-3Q18, pan-India office stock stood at 532 million sq ft and is expected to exceed 700 million sq ft by 2022. India will likely add about 100 million sq ft of office space to reach 632 million sq ft by end-2020.
Table 1: Growth in office stock in cities (2018-20)
Source: JLL REIS
Key expected trends:
Absorption of office space is projected to be stronger in 2019-20 with growing requirement for spaces by key occupier categories like IT, co-working, manufacturing and banking & finance sector. Due to Inida’s distinct advantage of offering many things at a cheaper rate – may it be real estate space or human resources, many foreign companies will continue to expand their base in Indian cities, including domestic firms. Strong economic fundamentals and growing urbanisation will be the two factors driving real estate market in India. This is likely to attract several investors in a big way to invest in real estate.
Mumbai, being the financial hub of the country and a diverse office base, will continue to be preferred by many occupiers. Demand is likely to surpass supply in Mumbai in 2018-20. Ongoing and upcoming infrastructure projects will boost real estate growth in the city. Bengaluru will likely be the largest office market with stock of 139 million sq ft and have the lowest vacancy rate of 4.5% by end-2020. In terms of growth in stock, Hyderabad is likely to grow at the fastest rate of 36% in 3Q18-4Q20, followed by NCR and Bengaluru showing growth of 23% and 20% respectively in the same period.
New project announcements are seen in several markets due to limited availability and high demand. Firms in the IT sector occupy most office space (39% in 1H18) at the pan-India level and co-working space almost doubled in 1H18 (9%) over CY2017 (5%). Traditional sectors – IT, banking and financial services, manufacturing are expected to drive real estate absorption in the medium-term, with a growing contribution from the co-working sector.
Key underlying drivers of office sector growth:
Resilient economy and strong fundamentals: IMF predicts India will retain the fastest growing economy tag with growth of 7.3% for FY18-19 and 7.4% for FY19-20.
Improvement in transparency: Structural reforms like GST, RERA and Benami Transactions (Prohibition) Act have led to improving transparency and accountability. In JLL’s 2018 global real estate transparency index survey, India’s transparency ranking went up to 35 from 40 in 2014.
Infrastructure development: Large-scale ongoing and upcoming infrastructure development across the cities, including metros, airports and flyovers, will drive real estate demand in a big way.
Flexspace: The new work culture like flexspace or co-working will likely drive real estate demand. This will bring in several occupiers and businesses under the umbrella of Grade A office space.
Competitive rents: Rents in several Tier II or extended parts of Tier I cities are affordable to many multinationals, resulting in higher absorption of space in these markets. Cities such as Hyderabad and Pune are likely to attract more demand because of competitive rents.
Skilled human capital: Availability of skilled human resources has been a strength in cities.
More on 'Office' in 'India'
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- Flexible workspaces dominate Gurugram’s demarcated SEZsOctober 29, 2024
- India’s office market: the rise of relevant grade projectsOctober 10, 2024
- The rise of responsible real estate in IndiaJune 18, 2024
- How workplace design helps retain talent in IndiaMarch 7, 2024
