Market rentals for Grade A office spaces have seen a notable rise of 8.7 percent quarter-on-quarter in Q1CY24.
A recent report by CREDAI-CRE Matrix reveals that leasing demand for Grade A office spaces in India is projected to surpass 70 million square feet (MSF) by the year 2024.
Specifically, the report indicates that the demand for Grade A offices experienced a robust increase of 12 percent quarter-on-quarter (QoQ) and 14 percent year-on-year (YoY) in the initial quarter of CY 2024, culminating in a total of 16.7 million square feet.
The primary cities fueling this surge in demand include Bengaluru, the Mumbai Metropolitan Region (MMR), and Delhi-NCR, which collectively represent nearly two-thirds of the total office demand. Notably, these top three cities achieved a commendable 23% growth compared to the previous year.
On a nationwide scale, market rentals in Grade A spaces have heightened by 8.7 percent QoQ during Q1CY24.
Furthermore, the report sheds light on the prominence of larger leasing deals, specifically those exceeding 1 lakh square feet, as a vital contributor to office demand. In the first quarter of CY 2024, tenants leasing spaces of over 1 lakh square feet comprised 56% of the total leasing transactions, a significant increase from 36% in Q4CY 2023 and 33% in Q1CY 2023. The cities of Bengaluru, Hyderabad, and Noida were responsible for 66% of these larger transactions.
Boman Irani, President of CREDAI, pointed out that Grade A spaces have experienced considerable demand growth in the last four to five years, significantly driven by Global Capability Centers (GCCs) and the IT sector.
“Our forecast indicates that pan-India Grade A office demand will reach 70 million square feet by 2024, bolstered by strong economic fundamentals and substantial investments in both physical and digital infrastructure.” According to Irani, this forecast not only highlights the resilience of the commercial real estate sector but also points to numerous opportunities for developers, corporations, and investors alike.
Amid the resurgence in office space utilization, the IT/ITeS sector has emerged as the leading force in leasing demand, accounting for around 28% of the overall office space requirements. Meanwhile, the BFSI sector has also witnessed growth in its leasing demand share, escalating from 16 percent in Q1 of FY 2023 and 13 percent in Q4 of the same year, to 20 percent in Q1 of FY 2024.
Abhishek Kiran Gupta, CEO and Co-founder of CRE Matrix and IndexTap, suggests that the upcoming quarters will witness an uptick in office supply completions. With market rentals favoring landlords in prime locations, the volumes of leasing business are anticipated to rise as well.
“As rentals continue to climb in key markets such as NCR, Bengaluru, and Mumbai, we foresee larger leasing transactions unfolding in cities like Pune, Chennai, Hyderabad, and Noida, where tenants are prepared to pay a premium for superior-quality office space. Additionally, the new government budget is poised to enhance infrastructure and the BFSI sectors, maintaining the upward trajectory of rental rates,” he remarked.