According to a report by Savills India, India’s office space absorption in the first half of 2024 reached an unprecedented 34.8 million square feet, marking a 29% increase compared to the same period in 2023. This surge in demand highlights the robust recovery and growth of the country’s commercial real estate sector.

Naveen Nandwani, Managing Director of Commercial Advisory and Transactions at Savills India, stated, “India’s office market saw record-high absorption in the first half of 2024, indicating positive business sentiment among occupiers. Employees’ return to physical offices has spurred office demand across all occupier segments, including tech.”

Despite the record absorption, the new office space supply witnessed a sharp decline of 32% year-over-year, with only 17.4 million square feet completed in H1 2024. This limited supply and increased transaction activity decreased the overall vacancy rate to 15.9%, down from 18.0% the previous year.

Leasing activity in the second quarter of 2024 reached 17.2 million square feet, reflecting a slight 2% decrease compared to the previous quarter. However, the supply of new office space surged by 64% quarter-on-quarter to 10.8 million square feet. Bengaluru remained the top contributor to national leasing activity, accounting for 28% of the market. Mumbai and Hyderabad followed closely with 18% and 16% shares, respectively.

Mumbai’s office market has grown remarkably since the second half of 2023. The technology sector led leasing activity, occupying 39.3% of the total space absorbed, followed by the banking, financial services, and insurance (BFSI) sector at 16.9%. Flexible workspaces captured 13.9% of the total space absorbed. “The demand momentum is expected to continue through the second half, with the year anticipated to see new record absorption levels of 65-66 million square feet in 2024,” Nandwani added. “We expect strong leasing activity from the tech, BFSI, flexible workspace, and manufacturing sectors.”

Interestingly, Mumbai was the only city to witness a year-over-year increase in new office space supply during the first half of 2024. All other cities saw a decrease in new supply compared to last year. Year-over-year, leasing by the tech sector grew significantly by 61%, and the BFSI sector saw a 51% increase. However, the flexible workspace segment experienced a 16% decline in space take-up. Large deals, over 100,000 square feet, remained dominant, contributing 43.5% of all transactions.

Hyderabad maintained its position among the top three cities for office leasing, with large deals constituting a significant portion (62%) of the total absorption. The tech and healthcare & pharmaceutical sectors were the leading demand drivers, accounting for 31% and 25% of the total space absorbed.

Pune saw a remarkable 37% year-on-year increase in gross absorption, securing the fourth position. This growth was driven primarily by increased space take-up by the BFSI, IT-BPM, and engineering & manufacturing sectors. Chennai experienced a slight decline of 3% year-on-year in leasing activity, with a total absorption of 4.4 million square feet, mainly driven by tech companies (50%) and BFSI (15%).

In Delhi-NCR, the flexible workspace segment overtook the tech sector as the main contributor to leasing activity, holding a 32% share of gross absorption. Mid-sized deals, ranging from 25,000 to 99,999 square feet, dominated the leasing activity in the first half 2024.

Savills India anticipates that the demand for office space will continue to rise, with a forecast of 65-66 million square feet for the entire year. This would be the highest annual total ever recorded. However, new supply is expected to catch up to demand, potentially leading to intensified competition for high-quality office spaces. Overall, Grade A stock stood at 767.6 million square feet in H1 2024 and is projected to reach 820-823 million square feet by the end of the year.