From Chennai to Bangalore: Insights into India’s Dynamic Commercial Real Estate Scene

The Indian economic saga in the last decade has been one marked by resilience and defiance of global forces of economic decline. The country today boasts of having the fifth-largest economy in the world, backed by a robust infrastructure, a large working population, and high investor confidence.

While the rest of the world’s commercial real estate absorption has severely struggled in recent years, the segment in India has defied this trend. According to a recent study, the Indian commercial real estate market, valued at a staggering USD 33.62 billion in 2023, is expected to grow at a CAGR of 21.10% during the next five years, reaching 87.57 billion by 2028.

Another study has revealed how the fourth quarter of 2023 has culminated in office space absorption reaching record-breaking levels, with 58.2 million square feet of gross absorption.
Let’s look at some of the other trends about the Indian commercial real estate market that the study has revealed.

Which cities are leading the office absorption growth?

The study reveals that it is peninsular India and Delhi NCR that are leading the country in terms of commercial space absorption, with Bengaluru accounting for one-fourth of the share. However, a surprising reveal in the study was the growth witnessed in Chennai, with the city recording 10.5 million square feet of uptake, doubling absorption as compared to 2022. It is the first time Chennai has been placed among the top three cities in terms of office absorption, along with Bangalore and Hyderabad.

According to industry experts, the demand for commercial real estate in India is anticipated to continue on this growth trajectory, with both domestic and foreign interest likely to surge even more in the coming years. The next few years are predicted to be marked by a sustained interest in both core and flex commercial real estate spaces, with special interest in Tier 2 markets. These office spaces are expected to be characterised by sustainability and futuristic features.

What industries contributed to the increase in demand?

While demand from the BFSI, engineering, and manufacturing sectors has grown twofold, almost doubling from 10-12% in 2020 to 16-20% in 2023, the IT sector’s contribution to office absorption has been cut by half. In fact, for the first time in a long time, leasing by engineering and manufacturing surpassed the leasing demand from the IT sector in the IT capital of India, Bangalore, accounnting for 26% and 22%, respectively.

The demand for flex spaces also remains at an all-time high of 8.7 million square feet, with 2023 recording 24% higher office space leasing than 2022. As more and more offices are slowly but surely moving back from the remote model to the hybrid or hub-and-spoke model, the flex model is forecasted to gain even more popularity in the ensuing times.

Towards the second half of 2023, Global Capability Centres have also resumed their expansion momentum in India with great fervour, bouncing back from the lukewarm period during the pandemic. As a result, over 40% of leasing deals in the country’s top 6 cities were from GCCs. The reason for this renewed vigour in office tenancy by GCCs is because of the country’s strong economic ecosystem, a liberal regulatory framework, stable socio-political framework, readily available large talent pool, and easy availability of Grade A buildings.

The demand for large office spaces is not only limited to GCCs but also hails from domestic firms across various segments, such as BFSI, technology, healthcare, etc. Indeed, large office spaces of 1,00,000 square feet accounted for over 50% of all commercial real estate deals sealed in 2023.

Final Thoughts 

In recent years, India’s commercial real estate landscape has not only weathered global economic challenges but has also successfully emerged as an international beacon of growth. As BFSI, engineering, and manufacturing sectors take the lead, flexible models gain momentum, and the resurgence of Global Capability Centres becomes a characteristic of the office landscape, India’s commercial real estate journey is poised for sustained success in the years ahead.