Office space demand may fall 18-22% this calendar year on high base effect: CREDAI-CRE Matrix

Demand for office space across six major cities is likely to decline 18-22 per cent this year on higher base effect and delays in decision making by corporates related to their expansion plans, according to CREDAI and CRE-Matrix.

In their joint report, real estate developers apex body CREDAI and data analytic firm CRE Matrix have estimated that the fresh leasing of Grade A premium office space stood at 55-57 million square feet in the 2023 calendar year.

The data excludes renewals.

The absorption of office space was 70 million square feet during 2022.

During January-September period of this year, the leasing activities have already touched 41.8 million square feet across six major cities -- Delhi-NCR, Mumbai Metropolitan Region (MMR), Bengaluru, Pune, Chennai and Hyderabad.

IT/ITeS, BFSI and co-working sectors drove two-third of office demand at a pan-India level.

The report highlighted that the Grade A office space stock is 770 million square feet at the end of the third quarter of this calendar year.

The vacancy level is 17.4 per cent.

Commenting on the office market, CREDAI National President Boman Irani said, "With the diversification of various industries in India and the increasing number of global capability centres, we are seeing a future-first innovation in infrastructure and design which has supplemented the growth of modern Indian workspaces."

Abhishek Kiran Gupta, CEO & Co-founder of CRE Matrix, said the upward trend in office demand is just the beginning of a long-term growth cycle with India racing towards becoming a USD 5 trillion economy by 2030.

"We predict two trends in the near term -- formats such as managed spaces are likely to see double-digit growth rates as occupiers opt for convenience and employee-centric spaces," he said.

Secondly, Gupta noted that cities such as Pune, Noida, Navi Mumbai and Thane will pose as strong challengers to established office hubs of Mumbai, Bengaluru and Gurugram.

"We will see developers allocating more capital to these younger cities as lower talent costs, better infrastructure/connectivity and affordable housing attract larger office demand," he said.

As per the data, the demand for office space was highest in Bengaluru at 10.5 million square feet during January-September, followed by Delhi-NCR 8.6 million square feet, Hyderabad 6.8 million square feet, MMR 6.7 million square feet, Pune 5.1 million square feet and Chennai 4.1 million square feet.

Among occupiers of office space, IT/ITeS sector accounted for 35 per cent, BFSI 17 per cent and co-working 14 per cent.

The demand for flexible workspace has risen sharply after the COVID pandemic. Flexible workspace has become a preferred option for corporates looking to expand their businesses.

Even those companies which are accustomed to traditional office setups are opting not to renew their lease agreements, instead transitioning towards co-working spaces," Bengaluru-based Urban Vault Co-founder and CEO Amal Mishra said on the potential of the flex space market.