The Indian commercial real estate market is projected to experience significant growth in FY25, with net leasing of Grade A office spaces expected to reach 41-43 million square feet, according to Crisil Ratings. This growth is driven by increased demand from global capability centers (GCCs) and sectors like BFSI and manufacturing. Bangalore and Hyderabad are anticipated to see the most growth due to their tech hubs and infrastructure improvements. GCCs are expected to account for 40-45% of leasing activity, while vacancy rates are predicted to stabilize at around 17.4-17.5%, marking a recovery after high pandemic-era vacancies.
The commercial real estate market in India is poised for significant growth in the coming fiscal year, with expectations that net leasing of Grade A office spaces will reach between 41 to 43 million square feet in FY25. This projected growth, according to a recent report from Crisil Ratings, is primarily fueled by an unexpected surge in leasing demand from global capability centers (GCCs), as well as from sectors such as banking, financial services, insurance (BFSI), and manufacturing.
In recent years, the office space market has seen a mixed recovery, but FY25 is set to mark a notable turnaround after four years of gradual improvement. The anticipated rise in net leasing is a response to an increase in demand from various industries, despite high vacancy rates observed during the pandemic. As many special economic zones (SEZs) faced denotification due to underperformance, this trend is expected to help stabilize the office space market.
The Bangalore and Hyderabad regions are likely to witness the most significant growth in office leasing. These cities have become hotspots for technology and innovation, attracting numerous companies looking to establish or expand their operations. Local initiatives aimed at boosting infrastructure and connectivity are further enabling this trend. Additionally, tech-driven industries are bringing a fresh wave of demand, particularly from startups and established firms in search of modern office spaces that can accommodate hybrid working models.
GCCs are projected to account for 40-45% of total net leasing activity in FY25. These centers play a crucial role in supporting multinational corporations by providing rich talent pools and operational efficiencies. Notably, the IT and IT-enabled services (ITeS) sectors, while contributing to about 20-25% of overall office space demand, are expected to grow slowly as many domestic firms face challenges. Nevertheless, the steady demand from IT/ITeS GCCs ensures that this sector remains relevant in the broader leasing landscape.
The engineering, manufacturing, and BFSI sectors together represent a combined share of 35-40% in leasing demand. As the Indian economy continues to grow, the reliance on offshore operations through GCCs is likely to bolster demand in these key sectors. Companies are venturing into new projects and expanding existing facilities, indicating positive investor confidence.
While vacancy rates soared during the pandemic, increasing by 600 basis points from FY20 to FY24, industry experts like Gautam Shahi from Crisil Ratings predict that these levels will stabilize between 17.4% and 17.5% in FY25. The gradual absorption of office spaces reflects a shift as companies adjust to the changing work environment and prioritize flexible office layouts.
Overall, the commercial real estate landscape in India is entering a new phase, characterized by robust demand across various sectors. The continuous evolution of workplace strategies, coupled with optimistic projections for economic growth, suggests that the market for Grade A office space in India is on a positive trajectory. As businesses adapt to meet the needs of a post-pandemic world, stakeholders in the real estate sector will be watching closely to see how these trends unfold in the next fiscal year.
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