Office leasing market hits record high: Flexible workspace, IT lead surge

Transactions above 100,000 sqft made up 41% of demand, with a 13% Y-o-Y increase, particularly in Bengaluru and Pune.

The year 2024 witnessed the highest-ever office leasing in India, reaching an unprecedented 81.7 million square feet (msf). This marks a 19% increase over calendar year 23, breaking the previous record, according to a report by real estate consultancy firm CRE Matrix, in partnership with the Confederation of Real Estate Developers' Associations of India (CREDAI).

 

 In a year characterized by economic uncertainties, the surge in demand was powered by a positive business outlook and the flexibility offered by co-working and flex-space models, which have become increasingly popular.

 

Bengaluru, Hyderabad, and Mumbai led the charge, collectively accounting for 62% of the total office leasing demand and showing a 20% year-over-year growth. Additionally, all the top six cities, except Bengaluru and Hyderabad, saw their highest-ever office leasing demand in CY’24, demonstrating the nationwide strength of the office sector.

 

 

 Although new office completions in India dropped by 19%, totaling 53 msf in CY’24 compared to CY’23, India surpassed the 900 msf mark in Grade A office stock. Bengaluru and Hyderabad were the major contributors, responsible for 55% of the new supply in CY’24, compared to 51% in CY’23. This increase in premium office space availability reflects the growing demand for high-quality real estate.

 

 The demand-to-supply ratio, which stood at 1.5x in CY’24, resulted in a decrease in vacancy rates across key cities like Delhi NCR, MMR, and Chennai. The overall Pan-India vacancy rate dropped to 15.7%, a notable improvement from 17.7% in CY’23, further highlighting the strong demand for office spaces.

 

Co-Working/Flex Segment Surges The co-working and flexible workspace sector experienced a 30% increase in leasing demand, contributing 13 msf in CY’24, up from an average of 10 msf over the past three years. This growth was driven by a 25% year-on-year increase in demand from co-working operators, with Delhi NCR seeing a doubling of demand and Bengaluru growing by 1.4 times compared to CY’23.

 

The IT and IT-enabled Services (ITES) sector remained the dominant driver of office leasing activity, accounting for 42% of total leasing demand in CY’24, a sharp increase from 28% in CY’23. This reflects the sector's ongoing growth and its substantial contribution to India's office space demand.

 

Large Transactions Lead the Market:  Transactions of over 100,000 square feet made up 41% of total office demand in CY’24, reflecting a 13% year-on-year increase. Bengaluru and Pune were key players in this segment, registering notable growth as large-scale corporate occupiers continued to expand.

 

Rental Rates on the Rise 

 

The surge in office leasing activity has driven rental rates higher, with the Pan-India average reaching ₹106 per square foot, marking a 13% increase from CY’23. Key cities like Hyderabad, Pune, and Mumbai were particularly instrumental in driving this rise, fueled by strong demand and limited supply.