Office Space Demand Surges 54% in H1 2024, with Bengaluru Leading the Growth

The first half of 2024 has witnessed a remarkable surge in office space transactions across India, with a notable year-on-year (YoY) increase of 54% for large office spaces. According to a recent report by Knight Frank, the total transactions for office spaces exceeding 100,000 square feet (sq ft) rose significantly from 10.18 million sq ft in H1 2023 to 15.69 million sq ft in H1 2024. This growth highlights a robust demand for expansive office environments, driven by various factors including economic expansion, evolving work trends, and strategic business expansions.

Leading Cities in Large Office Space Transactions

Among the major cities in India, Bengaluru has emerged as the frontrunner in the surge of large office space transactions. The city contributed 53% of the total commercial transaction volumes, translating to approximately 4.5 million sq ft. This substantial increase underscores Bengaluru's growing role as a key business hub, attracting significant investments and corporate expansions.

Hyderabad and Mumbai follow Bengaluru, with large office space transactions reaching 3.08 million sq ft and 2.66 million sq ft, respectively. The National Capital Region (NCR) also saw considerable activity, with 1.87 million sq ft of large office space leased. Pune, another prominent city, recorded 1.82 million sq ft of transactions. These figures reflect a widespread trend of increased corporate activity and a shift towards larger, more modern office spaces in major urban centers.

Growth in Mid-Segment Office Spaces

The mid-segment office space market, defined as spaces ranging from 50,000 sq ft to 100,000 sq ft, experienced a significant growth spurt, with a 70% YoY increase. Transactions in this segment reached 7.28 million sq ft in H1 2024. Mumbai and NCR led this category, each with 1.57 million sq ft of transactions, demonstrating their continued prominence in the office space market. Hyderabad followed with 1.29 million sq ft, reflecting strong demand and expansion in the city’s commercial real estate sector.

This growth in mid-segment office spaces indicates a shift in corporate preferences, with businesses increasingly opting for flexible and scalable office solutions that cater to their evolving needs. The substantial rise in this segment also suggests a growing trend towards medium-sized office environments that balance cost-efficiency with operational flexibility.

Moderate Growth in Small Office Space Transactions

In contrast to the significant growth in larger and mid-segment office spaces, transactions for smaller office spaces, defined as those below 50,000 sq ft, saw a more modest increase of 0.08% YoY. Total transactions for small office spaces amounted to 11.7 million sq ft. NCR, Pune, and Chennai were the top cities in this category, with 2.22 million sq ft, 1.78 million sq ft, and 1.6 million sq ft, respectively.

The moderate growth in small office space transactions highlights a steady demand for compact office environments, particularly in regions where businesses are seeking cost-effective and strategically located office solutions. While the growth rate is slower compared to larger office segments, the consistent demand for small office spaces underscores their ongoing importance in the commercial real estate market.

Bengaluru’s Continued Dominance

Bengaluru's leading position in office space transactions is attributed to its role as a hub for large corporate occupiers, especially those establishing Global Capability Centres (GCCs). This trend is driving the expansion of the city’s office space market, as businesses seek to leverage Bengaluru's talent pool and strategic location. The city's robust infrastructure, supportive business environment, and growing number of flexible workspaces are contributing factors to its dominance in the office space market.

Flexible workspaces, in particular, are becoming increasingly popular, offering adaptable and cost-effective solutions for IT services, startups, and other sectors. This flexibility allows businesses to scale their operations efficiently and respond to changing market conditions.

Future Outlook

Looking ahead, India’s commercial real estate sector is poised for continued growth, with increasing demand for office spaces across major cities. Bengaluru is expected to remain a key player in this market, with projections indicating that the city will dominate India’s commercial real estate sector with 330-340 million sq ft of office stock by 2030.

The upward trend in office space transactions reflects a positive outlook for the commercial real estate market, driven by ongoing economic growth, evolving work practices, and strategic business expansions. As businesses continue to adapt to changing market dynamics, the demand for both large and mid-segment office spaces is likely to rise, shaping the future of India’s office space market.

Conclusion

The significant increase in office space transactions in H1 2024 highlights a robust and evolving real estate market in India. Bengaluru's leading role, coupled with strong growth in mid-segment office spaces and steady demand for smaller office environments, underscores the dynamic nature of the commercial real estate sector and its promising future.