A joint industry report by CREDAI and CRE Matrix stated that high-quality office space in India’s top six cities had already surpassed 700 million sq.ft. in 2023, and would reach 1 billion sq.ft. by 2030 (for comparison, the U.S. has high quality office space of roughly 6 billion sq.ft).
India’s GDP grew by 7.2% in the year ending March 2023 and 8.7% in the year before that, displaying the country’s strong resilience against economic headwinds. In FY24, the World Bank forecasts India to be the fastest-growing economy among the top five economies, with GDP estimated to more than double. This boost is bound to be accompanied by strong office demand and India’s office market will be quintessential to this growth. As the world emerges from the shadows of the pandemic, India’s office real estate sector stands tall.
Low operating costs
One of the major advantages that India’s office space sector holds is affordable pricing. At approximately $1 per sq.ft., office real estate in India is considerably more cost-effective as compared to other countries. As per a study by NASSCOM, operating costs of offices in tier-2 cities in the U.S. are as high as seven times the cost in Bengaluru, India’s largest office market. This makes the Indian office market attractive to most MNCs.
India continues to remain the most important market for Global Capability Centres (GCC), which have transitioned from cost centres handling back-end technology implementations to profit centres driving innovations in AI, data analytics, and cyber security. Ernst&Young estimates that GCCs will increase from 1,600 to 2,400 by 2030, further driving India’s office market. As businesses continue to expand their operations, the demand for office spaces is only expected to keep growing.
Tech talent abounds
The surge in digital technology coupled with the growth of start-ups has led to an increasing demand for modern, tech-enabled workspaces.
Office complexes equipped with cutting-edge technology, high-speed internet, and state-of-the-art amenities have become a magnet for companies seeking a competitive edge. Adding to this is India’s tech pool of about 3.8 million, just third behind the U.S. (4.4 million) and China (4.2 million). Lastly, India’s share of the working-age population is expected to reach 68.9% of the total population by 2030, inducing a huge influx of young, English-speaking, digitally savvy Indians into the workforce and boosting office demand.
Improved framework
The introduction of the Real Estate Investment Trust (REIT) regulations has been crucial in driving investments in the office market in India. Till date, four REITs have been listed, and $27 billion has been invested in Indian real estate by institutional investors. As per Cushman & Wakefield, the Indian REIT office market is expected to increase substantially from 74.4 MSF (1000 sq.ft.) to 180 MSF by 2024, accounting for 22% of Grade A stock.
The increased institutional demand has further incentivised developers to construct high quality assets, with the improved office infrastructure, in turn, attracting MNC tenants to continue to expand in India. These are some of the underlying factors driving the ongoing boom in India’s office market.
While challenges such as rising real estate costs and infrastructure issues still need to be addressed, the outlook for India’s office space sector looks promising, with steady growth expected in the near future.
Rahul Jain
The author is the Head of Investments (South) at Property Share, India’s first and largest commercial property investment platform.
The article has also been published on Thehindu.com on 10th November, 2023
(https://www.thehindu.com/real-estate/real-estate-office-properties-construction/article67307291.ece)