A recently released report by Colliers India indicates a shift in India's office market from "Supply-led" to "Occupier-driven" signalling imminent growth. Demand from GCCs and domestic-origin occupiers will remain strong, boosting the market over the next 2-3 years. While the top six cities dominate, tier II cities are emerging as key growth hubs. Engineering, manufacturing, and BFSI sectors are expected to lease 11-12 million sq ft of office space annually between 2025-27, up from 8-9 million sq ft previously. Flex spaces will expand, accounting for 15-20% of leasing. Bengaluru leads, but Hyderabad, Chennai, and Pune are gaining traction. Rental rates vary, with premium CBD spaces favoured by BFSI, while engineering and manufacturing firms balance central and peripheral locations.
Collier's report highlights a significant shift in the office market, transitioning from a "Supply-led" environment to a more "Occupier-driven" landscape. This evolution suggests that the market is on the brink of substantial growth and expansion in the upcoming years. Demand from GCCs and domestic-origin occupiers remains strong and is expected to boost demand over the next 2-3 years. While the top six cities will continue to shape the commercial real estate landscape in India, emerging markets, particularly tier II cities, are anticipated to become prominent growth hubs.
In the next three years (2025-27), engineering, manufacturing, and BFSI sectors are projected to lease approximately 11-12 million sq ft of office space annually, an increase from the 8-9 million sq ft per year in the past three years. These sectors will together represent around 40% of total office space demand. Conversely, space uptake by technology firms is expected to stabilize at around 15 million sq ft as they adapt to hybrid and distributed working models. Additionally, flex space occupiers are anticipated to expand into new regions, accounting for 15-20% of total office leasing in 2-3 years.
Bengaluru continues to lead in most occupier sectors, but Hyderabad, Chennai, and Pune are gaining momentum. While Bengaluru remains a top market for Grade A office space across sectors, cities like Hyderabad, Chennai, and Pune are rapidly catching up, with increased demand from flex spaces, BFSI, and engineering & manufacturing firms. Notably, some high-performing micro markets, such as SBD-Hyderabad, have surpassed Bengaluru's more prominent micro markets in office space taken-up by the technology sector. Other micro markets, including OMR (Zone 1) in Chennai, Kharadi and Baner-Balewadi in Pune, and Off SBD in Hyderabad, have also seen heightened traction in key demand sectors, reflecting the changing preferences of occupiers.
BFSI and consulting firms are expected to continue favoring superior quality buildings in Central Business Districts (CBDs). These occupiers are often willing to pay a premium for prestigious buildings with top-tier amenities in strategic locations. Additionally, due to real estate footprint optimization, engineering and manufacturing firms typically prefer central offices in prime locations and satellite offices in peripheral areas.
On average, rental rates in micro markets preferred by leading BFSI occupiers are 44% higher than those in markets favored by engineering and manufacturing firms. Technology firms are more evenly distributed across central, suburban, and peripheral districts. In contrast, flex operators tend to favor Secondary Business Districts (SBDs) due to their strategic location, connectivity, and developed infrastructure.
The office market in India is evolving, with Bengaluru maintaining its leadership while Hyderabad, Chennai, and Pune gain prominence. The shift towards occupier-driven demand highlights the growing significance of flex spaces and premium office locations. BFSI and consulting sectors are willing to pay a premium for top-quality buildings in Central Business Districts, while engineering & manufacturing firms balance between central and peripheral locations. Technology firms are diversifying their presence, and flex operators are capitalising on the strategic advantages of Secondary Business Districts. This dynamic landscape underscores the need for adaptability and strategic location choices in a competitive market.
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