Indian office space market analysis: Where is future of office market heading in India?

27th March 2023


Ah! This "The Indian office space market" is one topic, which has been discussed the most since outbreak of COVID-19 in early 2020, across various forums (occupiers, investors, developers, owners, and others) and in media across the globe. However, now it is getting predictable after 3 long years.

Let's look at few stats, before heading to analysis.

  • India’s annual office space absorption from 2019 to 2022 was 48 mn sqft (2019), 23 mn sqft (2020), 28 mn (2021) and 38 mn sqft (2022). The spike of 2022 (post COVID-19) was on account of latent demand of 2020 & 2021 and hiring in knowledge industry has been all time high in 2020, 2021 and 2022.
  • Cumulative office space absorption for 2020, 2021 and 2022 is 89 mn sqft, whereas sum of three year absorption at 2019 level (48 mn sqft X3) would have been 144 mn sqft.

This is almost 40% short. So, where has this 40% office space demand gone in Indian Office Market?

The answer is Hybrid workplace has led to more hiring on a SqFt basis.

To understand if this is the permanent shift for Indian Office Market, and what are the other key relevant trends, our team has observed the following on the fields:

  • Occupancy in most of the IT parks is at 35% as compared to pre-COVID levels.
  • Many of the IT majors have de-leased or are in process of de-leasing part of their office space portfolio.
  • The impact of reduction in spaces is prevalent in IT Services sector whereas the firms engaged in product development works have resumed work from office in higher proportions.
  • Vacancy on a sqft basis is also rising, marginally though, in listed REIT portfolios, listed office space portfolio are of the best quality spaces available in the country.
  • Demand in CBD and SBD has been robust on account of firms located in these located firms have resumed work from office. The offices located in this part of the city are mostly corporate, sales or are not IT firms.
  • Proportion of Co-Working and Managed Offices is rising. It is almost 18% of the total absorption. As per our research it will go as high 30% in coming 3 to 5 years.

Suggestions to property owners and developers of office space in India:

  • Adopt environment friendly practices for all future office development and retrofit existing developments also on sustainability principles as occupiers are very sensitive on this subject.
  • Plan the development phasing considering the real demand and avoid speculative developments in especially emerging locations. There is a threat of high vacancy in existing buildings which would impact pace of leasing of new developments.

On the brighter note, Indian economy is doing well and is poised to be next manufacturing hub for electronics, automobile (including EVs), defense, aero industry. Therefore, demand for overall real estate space will remain high, however, this workplace behavior change will negatively impact the overall office take-up.

As per our research, average annual office space demand in India will be in the range of 30 mn sqft to 35 mn sqft in coming years in comparison to 48 mn sqft in 2019. Therefore, demand base for office space is expected to reduce by almost 1/3 rd (33%) to the peak of 2019 numbers.

About the Author
Gorakh Jhunjhunwala, MRICS
Gorakh Jhunjhunwala, MRICS

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