Commercial real estate players will be a happy lot this year. Driven by strong demand from the Information Technology and business process management (IT-BPM) sector, banking and financial services companies as well as demand for flexible workspaces, office space absorption for the full year ending December 2024 is expected to hit 70-74 million square feet, according to a report by Savills India.
Between January-September 2024, demand touched 55.1 million square feet across the top six cities, up 30 per cent year-on-year and just around 7 million square feet lower than full year 2023 numbers, according to the real estate advisory firm.
In the July-September quarter, office absorption touched 20.2 million square feet, up 28 per cent from a year ago. Three cities—Bengaluru, Delhi-NCR and Mumbai— contributed to 66 per cent of the overall leasing activity during the period, noted Savills.
"With employees returning to physical offices, demand has surged across all segments, including tech. We anticipate this momentum to continue in the last quarter of the year, potentially driving absorption levels to new record of over 70 million square feet in 2024. Demand is likely to be driven by tech, BFSI (banking financial services and insurance), flex workspace, and engineering and manufacturing occupiers,” said Naveen Nandwani, MD, commercial advisory and transactions, Savills India.
The IT-BPM market accounted for 29 per cent share of the office space absorption in the July-September quarter. There was also strong demand for flexible workspaces (23 per cent share) and from BFSI (banking, financial services and insurance) firms, which accounted for 22 per cent share.
Notably, while demand surged, new office completions have slowed down. In the January-September period, 32.6 million square feet was added, a 12 per cent year-on-year decline. With demand outstripping supply, vacancy rates reduced 15.5 per cent by the end of September, according to Savills India.
Delhi-NCR saw a 92 per cent year-on-year increase in office space absorption. Bengaluru, Pune and Mumbai also saw strong momentum, with office absorption growing 48 per cent, 42 per cent and 35 per cent year-on-year respectively. Hyderabad too saw a 34 per cent rise in office space absorption. However, Chennai saw a 35 per cent slump in demand, the advisory firm said.
Also, importantly, large deals accounted for half of total leasing activity, with Bengaluru, Delhi-NCR, and Pune driving more than 50 per cent of their respective leasing through such transactions, Savills added.