According to a new Colliers survey, occupiers in the Asia Pacific area are willing to pay higher rents for higher-quality workspaces, despite their cost-conscious mindset.
Key highlights of the office markets study for Q1 2024
— High-quality new office spaces attract up to 20% greater rental premiums than average quoted prices in select premium micro markets.
— Global Capability Centers (GCCs) fuel India's office space demand, accounting for 37% of total lease activity in Q1 2024.
— Bengaluru and Hyderabad dominated office market activity. They accounted for over half of lease and three-fourths of supply in the first quarter of 2024.
— In the face of strong demand-supply equilibrium, vacancy levels remained steady.
— Rental rates surged by up to 8% year-on-year across key markets.
— Global firms captured a significant 61% share.
Rental Rises in India's Leading Office Markets
Rentals in India's top office markets have increased by 4-8% annually. Colliers' 'Expert Insights | Asia Pacific Office Markets April 2024' research notes that strong demand and an increase of high-end, quality office supplies are driving this growth. After falling during the pandemic due to low demand, occupant exits, and remote work habits, rentals have risen in 2024, approaching pre-pandemic levels.
Reasons for increased willingness to Pay
Occupiers look for sites that are conducive to talent acquisition. India's excellent office market performance is due to sustained economic growth and improved occupier confidence. Specific high-performing markets in the top six cities have had annual rental growth of up to 20%.
"In reaction to changing market circumstances, office occupiers in India are modernizing their cost-cutting methods by adopting the hub-and-spoke model, growing flex space portfolios, and using technology. Suburban and peripheral areas that offer affordability are seeing increased demand, indicating a desire for sub-dollar or near-dollar markets," said Arpit Mehrotra, Managing Director, Office Services, India, Colliers.
Examples of High-Performing Markets
— MG Road, Delhi NCR: 18.2% annual growth.
— SBD 1, Bengaluru: 15.5% annual growth.
— Pallavaram Thoraipakkam Road (PTR) in Chennai: 10.9% annual growth.
City-wise snapshot
Bengaluru
— In Q1 2024, Outer Ring Road dominated leasing and North Bengaluru led supply, accounting for more than half.
— The Engineering & Manufacturing industry dominated leasing activity, accounting for 39% of the total, thanks to major transactions.
— Rentals were constant, giving occupiers a variety of options throughout the city.
Chennai
— Office leasing moderated to 1.5 million square feet in the first quarter of 2024, with 47% of demand coming from OMR Zone 1 and MPR micro-markets.
— The Engineering & Manufacturing industry witnessed a 28% YoY increase in leasing activity, outpacing the Technology sector.
— Vacancy levels are likely to stay constant despite strong demand and supply dynamics.
Delhi-NCR
— Gurugram's Golf Course Extension Road had the biggest space take-up, accounting for 0.7 million sq ft (28% of total leasing).
— Technology firms dominated leasing, accounting for roughly 3X rise in gross absorption compared to the previous year.
— Vacancy fell and rentals rose by around 9% in Q1 2024 because to high demand and limited new supply.
Hyderabad
— Space uptake grew 2.2 times in Q1 2024 compared to Q1 2023, driven by the healthcare and technology industries.
— Hi-tec City accounted for 80% of overall office leasing in the quarter.
— Vacancies were steady despite high demand and supply performance.
Mumbai
— The most active micro-markets were Navi Mumbai and Goregaon/Malad, contributing for about half of total absorption in Q1 2024.
— BFSI players dominated demand with 39%, while Flex space accounted for 15%, exceeding the Technology sector.
— Vacancy levels fell by 460 basis points year on year due to limited new supply and strong demand.
Pune
— The technology sector experienced a strong 3.3X YoY increase, indicating a significant recovery.
— Viman Nagar had the highest leasing rate at 25%, driven by BFSI, Technology, and Engineering & Manufacturing occupiers.
— Most markets had rental growth of 3-5% year on year.
— Vacancy rates rose due to lower space demand and increasing supply infusion.
Premium leases for Superior Quality Offices
New office supply with better construction and high-end facilities are often priced up to 20% more than regular rentals in select premium micro markets.
Flex Spaces and Next Trends
The flex space category has grown dramatically, with 8.7 million square feet leased by 2023. According to Mehrotra, flex spaces are likely to sustain their momentum in 2024, accounting for 15-20% of total office leasing across the top six cities. This highlights occupiers' desire for nimble, cost-effective workspace solutions.
GCCs and Their Impact
The Asia Pacific area benefits from more cost-conscious occupiers worldwide, notably GCCs in markets such as India. GCCs contributed for 37% of overall office leasing in the March quarter, and forecasts indicate that they will lease 45-50 million square feet over the next two years. This expansion is being driven by a variety of industries and a preference for green-certified Grade A office premises, particularly in sub and near-dollar micro markets.
What are GCCs?
Global Capability Centers are offshore entities set up by multinational organizations to execute a variety of strategic functions. They take advantage of specialized skills, cost arbitrage, and operational savings in a variety of global locations.
