Domestic Firms Set to Transform India’s Office Space Market: Projected 60-65 Million Sq. Ft. in 2024-25

The Indian commercial real estate sector is undergoing a significant transformation as domestic firms increasingly dominate office space leasing. According to a report by property consultancy CBRE, these firms are projected to lease between 60 to 65 million square feet of office space in 2024-25. This shift poses a challenge to the historical dominance of global corporations, particularly those based in the United States. The changing dynamics of the market reflect broader economic trends and changing corporate strategies in a post-pandemic environment.

Key Drivers of Change

Several factors are driving this surge in domestic leasing activity. First and foremost, government initiatives aimed at promoting business growth and investment have fostered a favorable environment for domestic companies. Policies designed to streamline regulations and enhance infrastructure have made it easier for businesses to operate and expand.

In addition to government support, many domestic firms have reported increased profitability. This financial health allows them to invest in high-quality office spaces that meet modern workplace standards. A well-capitalized banking sector has further facilitated this growth by providing easier access to financing for firms looking to lease larger spaces.

The growing talent pool in India continues to attract businesses, particularly in technology and service-driven sectors. Companies are increasingly looking to establish their presence in urban centers with a rich pool of skilled professionals. This trend is particularly evident in major metropolitan areas such as Delhi-NCR, Bengaluru, and Mumbai, which are seeing substantial leasing activity.

Rise in Office Space Absorption

Between 2022 and the first half of 2024, domestic companies accounted for nearly 47% of overall office leasing activity in India. Notably, there was a dramatic 60% increase in office space absorption compared to the pre-pandemic years of 2018-2019. Major cities are witnessing a surge in demand for premium office spaces, with Delhi-NCR leading the charge. The report indicates that occupier groups are acquiring substantial spaces in prime locations, driven by the need for enhanced operational efficiency and employee well-being.

Bengaluru has emerged as a hotspot for e-commerce firms, while Mumbai has captured a significant share (43%) of domestic BFSI (banking, financial services, and insurance) leasing. The diversification of industries seeking office space illustrates a dynamic market landscape where various sectors vie for prime locations. This shift signifies a broader trend towards localized decision-making in leasing strategies.

The Role of Flexible Spaces

The evolving nature of work has heightened the demand for flexible office spaces. The report highlights that three primary sectors are driving this trend: flexible space operators, the BFSI sector, and technology firms. Together, these sectors account for a substantial portion of domestic leasing activity.

Around 57% of domestic firms express an intent to utilize flexible spaces in the next two years. This preference reflects the growing need for adaptability in office layouts, allowing companies to adjust their work environments according to changing business needs. Flexible office spaces not only cater to the immediate requirements of businesses but also foster a culture of collaboration and innovation.

Emerging Trends in Office Leasing

The rise of remote work and hybrid models has also reshaped the office leasing landscape. Many firms are reevaluating their space requirements and opting for flexible leasing arrangements that accommodate fluctuating workforce sizes. The emphasis on sustainability is another critical factor influencing office design and operations. Companies are seeking spaces that incorporate green building practices and smart technologies, reflecting a growing commitment to environmental responsibility.

Additionally, Indian engineering and manufacturing firms, currently representing 7-8% of domestic office leasing, are expected to expand their footprint, particularly into Tier-II and Tier-III cities. These emerging markets are becoming new manufacturing hubs, driven by lower operational costs and access to skilled labor.

Homegrown retail and FMCG (fast-moving consumer goods) companies, which currently account for 1-2% of domestic office leasing, are also anticipated to increase their office space take-up as they seek to strengthen their market presence.

Future Outlook for Premium Office Spaces

Looking ahead, the demand for premium office spaces in India’s top nine cities is set to soar, with projections estimating an addition of approximately 185 million square feet of premium office space by 2026. Anshuman Magazine, Chairman and CEO of CBRE, emphasizes that the growth and diversification of urban centers will establish new standards for excellence in the commercial real estate market.

The report indicates that about 86% of domestic occupiers are expected to pursue ‘flight-to-quality’ leasing, emphasizing a strong preference for high-quality, well-located office spaces. This trend aligns with the increasing focus on employee well-being and productivity. Companies are recognizing that a well-designed workspace can enhance job satisfaction and, ultimately, performance.

Conclusion

The shift towards domestic firms leasing office space marks a transformative phase in the Indian commercial real estate market. Fueled by favorable government policies, evolving corporate strategies, and a burgeoning startup culture, this trend is set to reshape urban landscapes. As companies increasingly prioritize quality, flexibility, and sustainability in their workspace choices, the implications for the real estate sector are profound.