Why was the sector underperforming?

After a seven-year bull run, the sector cooled in 2020 when offices shut down due to the pandemic and work-from-anywhere became the new norm. Companies postponed leasing decisions and renegotiated rentals, leading to a rise in vacancy. Construction delays also led to a dip in new office supply. After the pandemic, residential real estate took off but the office sector saw no respite, hit by global headwinds this time. US technology companies, the largest occupiers of office space in India, laid off people and put expansion plans on hold. A funding crunch in the startup ecosystem didn’t help either.

Is an office revival expected in 2024?

It would appear so. After a sluggish first half, net absorption of office space picked up in the July-December period of 2023. Last year saw an annual absorption of 41.97 million sq. ft in the top seven cities, trailing only the levels recorded in 2019, as per property advisory JLL India. This is seen as the beginning of a sustained growth phase. Property advisory CBRE sees demand picking up in the second half of 2024, led by clearer visibility of the global macroeconomic situation and an uptick in the IT services sector. Bengaluru, followed by Delhi-NCR and Hyderabad may drive the office market.

How does India compare with global office markets?

It is worse elsewhere. Global vacancy rates have been rising, with North America the worst hit. As a mix of hybrid and work-from-home model prevails, office rents and leasing may fall further in 2024. In comparison, the fundamentals of India’s office market look stronger. Economic growth projections suggest demand for office real estate will stay resilient.

What will propel India’s recovery?

Multinational companies (MNCs) are reducing their dependence on Indian IT services firms by making their own tech centres, known as GCCs or captive centres. These MNCs, from financial services, engineering, manufacturing and tech sectors will expand their office real estate footprint and set up more research, development and innovation centres. CBRE expects existing GCCs to explore large campus-style offices and new entrants to opt for flexi workspaces, which will drive part of the demand.

Are there any concerns?

There has been a shift in demand among occupiers, with tech’s share decreasing. In 2016, tech firms commanded a 40.73% share of leasing. This halved to 20.9% in 2023, according to JLL. Further, outsourcing companies have slowed down because of slower revenue growth. Even as IT firms call employees back to offices, the hybrid model remains in place. Office rentals have also been under pressure, with limited increase, and even fell in Hyderabad. This year, too, rentals will only see a moderate rise.