India’s office space market experienced a significant upswing in Q3 FY24, with the banking, financial services, and insurance (BFSI) sector and flexible workspaces driving demand. According to Vestian, an occupier-focused workplace solutions firm, these sectors collectively accounted for 39% of office space absorption across India, a notable rise from 20% in the previous quarter.

“This quarter has recorded the highest absorption rate of 2024, totalling 18.61 million square feet,” the report attributed this surge to India’s robust GDP growth despite global challenges, including heightened geopolitical tensions in the Middle East.

Meanwhile, the once-dominant IT-ITeS sector saw its share decline by 15% compared to the second quarter of FY24. This shift highlights the evolving dynamics of India’s office market as businesses diversify their requirements in a post-pandemic landscape.

Southern Cities Take the Lead

Southern cities like Bengaluru, Chennai, and Hyderabad continued to dominate India’s office space absorption, contributing 61% of the total demand in Q3 FY24, up from 55% in the previous quarter. Bengaluru emerged as the standout performer, with its absorption share soaring from 25% in Q2 to an impressive 36% in Q3.

“Bengaluru’s leasing activities across major micro-markets have been a key driver of this growth,” the report noted. In contrast, Mumbai’s share declined from 20% in Q2 to 12% in Q3, reflecting reduced demand in the financial capital.

New completions followed a mixed trend across cities. Hyderabad led with 4.10 million square feet of new completions, marking the highest quarterly addition in the past year. However, Mumbai experienced a sharp 73% decline in new completions, and Chennai recorded a 29% drop. Kolkata, meanwhile, saw muted construction activity throughout the quarter.

Vacancy Rates and New Supply Trends

The report highlighted that pan-India office vacancy rates dropped by 90 basis points to 14.8% in Q3 FY24, driven by robust absorption and a healthy supply pipeline. New completions across the country rose 3% over the previous quarter, reaching 12.80 million square feet, signalling a steady recovery in the sector.

However, construction activity dipped by 4% compared to last year, reflecting cautious developer sentiment amid macroeconomic uncertainties.

Flex Spaces Gain Momentum

The growing prominence of flexible workspaces in Q3 FY24 underscores a significant shift in how companies approach office leasing. Businesses increasingly opt for flex spaces to accommodate evolving workforce needs, a trend that aligns with global shifts toward hybrid work models.

As the BFSI and flex sectors drive demand, the Indian office market remains resilient, adapting to shifting trends and economic headwinds. “This growth trajectory reflects the strength of India’s economy and the adaptability of its office space market,” the report concluded.

Looking Ahead

With Southern cities at the forefront and sectors like BFSI and flex spaces reshaping the market, India’s office space sector is well-positioned to sustain its growth trajectory. As businesses refine their strategies to match market demands, the upcoming quarters will likely solidify this trend further.