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GCCs to Drive Nearly 40% of Demand for Grade A Office Space in India: Colliers-RICS Report

Bengaluru, September 12, 2024: A report by Colliers and the Royal Institution of Chartered Surveyors (RICS) revealed that Global Capability Centers (GCCs) will be responsible for nearly 40% of India’s Grade A office space demand in the coming years. As GCCs evolve into knowledge and innovation hubs, they are set to become a key contributor to the office space market, alongside sectors such as Engineering & Manufacturing and Banking, Financial Services, and Insurance (BFSI), a press release from Colliers said.

The report, released at the RICS CRE FM conference, highlights the transformation of India’s office space market from one primarily driven by the technology sector to a more diverse and occupier-driven landscape. Increasing demand is now being seen from sectors including healthcare, consulting, and flexible workspaces, reflecting a broader shift in the market, the statement said.

The report underscores that Engineering & Manufacturing and BFSI sectors are projected to lease approximately 11-12 million square feet each per year between 2025 and 2027, up from 8-9 million square feet in the previous three years. These two sectors combined will account for around 40% of the total demand for office space.

While demand from the technology sector is expected to stabilize at around 15 million square feet annually, due to the adoption of hybrid working models, technology firms will still remain significant players in the office space market. In addition, flexible workspace providers are likely to see substantial growth, accounting for 15-20% of total office leasing in the next few years.

Bengaluru continues to dominate the demand for office space across most sectors, though other cities like Hyderabad, Chennai, and Pune are rapidly catching up. These cities are experiencing heightened demand from sectors such as BFSI and Engineering & Manufacturing, with many firms increasingly favoring these markets for their expansion. The report indicates that flex space providers, in particular, are finding these cities attractive due to the availability of premium real estate and favorable market conditions.

Leasing trends in the post-pandemic era reflect a notable shift in occupier behavior, with average office deal sizes decreasing to around 43,000 square feet in 2023, a decline of 11% compared to 2019. However, the number of deals has risen by 44%, suggesting a growing trend toward smaller but more frequent transactions.

This shift is largely due to the adoption of distributed work models, with companies opting for a “hub-and-spoke” approach to office space, expanding into multiple smaller offices in different locations.

BFSI and consulting firms are showing a clear preference for premium Grade A developments, particularly in central business districts. These sectors are willing to pay a premium for top-tier buildings with superior amenities in strategic locations. On the other hand, firms in the Engineering & Manufacturing sectors are more cost-conscious and typically opt for central offices in prime locations while maintaining satellite offices in peripheral areas. The report also notes that occupiers across all industries are increasingly prioritizing sustainability, with green-certified buildings becoming a key consideration in office space leasing.

It is expected that more than 75% of office space demand in 2024 will be for green-certified buildings, particularly from sectors such as Engineering & Manufacturing, BFSI, and technology.

As GCCs and other key sectors expand, India’s office space market is expected to experience robust growth across both major cities and emerging markets. Developers and investors are likely to find opportunities to lead in delivering sustainable and innovative office spaces, in line with evolving occupier preferences and driving long-term growth in the commercial real estate sector.