Leasing in the commercial office sector is expected to touch an all-time high this year–a sharp rebound from the pandemic years. This is partly led by demand from global capability centres (GCC) and flexible office operators. What does it signify for the economy?
1. What’s the leasing momentum like?
The recovery of the office sector after the pandemic has been gradual and uncertain. This year, however, it’s on a strong footing to achieve record leasing. The January-September period has already marked the highest leasing for the period. Office leasing is likely to see a historic high of 70 million sq. ft in 2024, across nine cities, surpassing the peak of 66.6 million sq. ft seen in 2019, as per estimates by property advisory CBRE India. As always, Bengaluru led the office space absorption during the January-September period, accounting for about 30% of the total leasing. It was followed by Delhi-NCR and Hyderabad.
2. Which sectors are driving this growth?
The growth is driven mainly by demand from multinational companies, return to office, and leasing by GCCs. The positive sentiment among office occupiers, particularly GCCs, along with a healthy pipeline of new office supply, has set the stage for record leasing. Technology companies, flexible space operators, and manufacturing and financial services companies have actively taken up office space this year. In the July-September quarter, American companies had a 42% share in leasing activity, though domestic companies continued to lead in the first nine months this year.
3. What kind of GCCs have taken up space?
Take-up by GCCs across sectors has been steadily rising, especially in banking, financial services and insurance firms, e-commerce and technology. Firms from sectors such as life sciences and retail have also set up GCCs in recent quarters. As per CBRE, GCCs are poised to expand significantly in the country, accounting for about 35-40% of total office leasing.
4. What does it mean for the economy?
India’s economic resilience is increasingly attracting businesses. Increased leasing of space implies expansion by companies or those setting up offices for the first time. This could spark hiring and create jobs and indirect employment. More jobs will have a cascading effect on all the sections of the economy, including consumption. That means more demand and better capacity utilization. If it sustains, private investment will revive. Global investors waiting on the sidelines can join the invest-in- India bandwagon.
5. What are the potential risks?
While the pick-up will continue, the risk from higher supply of office space and rise in vacancy could cap upsides in rentals. Property markets such as Hyderabad-likely to see a huge influx of office supply-need continued leasing momentum in order to keep vacancy levels in check. As the needs of large and mid-sized corporates and even startups keep evolving in a hybrid work model era, office developers and flex workspace operators need to offer customized office solutions to address the demand.