How will the influx of new office supply affect India’s office market?

Find out what to expect from the market for the rest of 2023.

The second quarter of 2023 saw the global economy remaining uncertain, although as we entered close to the end of this period, most economic analysts saw the risk getting mitigated to some extent.

In a report, Cushman and Wakefield said development could be a big positive for the office real estate market in India as US occupiers as well as investors sentiment have a strong bearing. 

Here’s more from Cushman and Wakefield:

While that may be the case, to a great extent, the Indian domestic market activity resulted in sustained strong leasing volumes during the first half of the year. With ~33 msf of leasing volume, the GLV in H1-23 accounted for 46% of the total GLV recorded in 2022, which was the best year for office leasing in history. The volume of smaller-sized deals picked-up pace as also the rise in share of activity from domestic firms. The Indian economy’s fairly robust growth outlook is translating into higher market activity by Indian occupiers, who are looking for expansion opportunities. This has added another tailwind to the office market. 

While demand can be expected to remain resilient, the market has been witnessing an influx of huge supply in the recent quarters. One could explain this phenomena's basis revival of stalled-projects during the Covid years and also the bullish anticipation of developers after observing a strong rebound in demand for office space since H2-2021. 

This influx of supply is resulting in vacancies ticking-up across multiple cities. This rising supply may be a positive for select micro markets where vacancies were too tight (such as ORR in Bengaluru, BKC in Mumbai, Madhapur in Hyderabad and Gurgaon Prime submarkets), however, this could be resulting in higher vacancies in peripheral / other markets. This will keep pan India headline rentals stable throughout most micro markets in the country.

Given the rising number of enterprises going big on ESG, green certified and/or wellness certified buildings are soon going to find favour amongst occupiers, thereby forcing most landlords to invest in refurbishments. As per C&W occupier survey of ~180 occupiers worldwide, many are now willing to consider paying ~22% premium for buildings that comply with ESG norms. In the backdrop of new supply coming-in across leading cities, many landlords of old buildings will be forced to invest in refurbishments in the coming days.