Office real estate in 2020: Bengaluru, Hyderabad, Delhi-NCR to dominate supply addition

Office real estate in 2020: Bengaluru, Hyderabad, Delhi-NCR to dominate supply addition

India’s office real estate has been soaring, on the back of a strong technology sector that continues to hire and thereby fuel demand for quality office space. According to CBRE, a real estate consulting firm, gross leasing activity grew by more than 25 per cent to over 60 million sq. ft. in 2019, a historic high. The company’s ‘India Office MarketView – Q4 2019’ report stated that Bengaluru, followed by Hyderabad, Delhi-NCR and Mumbai, dominated office leasing, together accounting for 75 per cent of the overall space take-up.

So how does 2020 look like for the office real estate sector?

CBRE expects sustained occupier interest. “Absorption is expected to be mainly driven by India’s position as a preferred outsourcing destination and growing needs for space among corporates from sectors such as tech, BFSI, engineering & manufacturing and research, consulting and analytics. Other sectors such as pharmaceuticals/ healthcare, telecommunications and e-commerce are also likely to report higher occupier demand. Space take-up by tech corporates would be largely dominated by foreign players, especially US and APAC-based firms,” the firm noted.

The three markets of Bengaluru, Hyderabad and Delhi-NCR are expected to dominate supply addition in 2020. “Development completions are likely to be concentrated in peripheral or suburban micro-markets. However, Delhi-NCR is likely to witness supply addition in core locations as well,” CBRE noted.  “It is anticipated that landlord priorities would shift from just LEED certifications to delivery of International WELL Building Institute’s (IWBI) WELL Building Standard (WELL) certifications.  Increased usage of tech and focussed refurbishment of business parks by developers is likely to positively impact the valuations of such developments in the medium- to long-term. Along with increased investment in developments, landlords are also expected to improve available amenities promoting experience of the work-place, such as increased F&B offerings, thereby improving the quality of space offered,” the firm added.

In terms of rent, a few micro-markets could see increases. “As new buildings become operational, residual spaces along with higher quality of new spaces are likely to drive rental growth across major cities. It is also expected that older developments would observe rental growth when they are appropriately refurbished and equipped with adequate amenities,” CBRE stated. “Furthermore, it is anticipated that rentals are likely to grow due to continued pre-leases in under-construction developments and limited availability of ready-to-move-in spaces. In cities such as Bangalore, Chennai and Pune, sustained absorption in quality developments is likely to lead to tapered growth during the year. Strong demand for space in quality developments and planned infrastructure upgrades are likely to result in a marginal increase of 1-2 per cent in rentals in core micro-markets,” the firm noted.