Office mkt in South on fast lane driven by IT in B’luru, Hyderabad, Chennai

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Within Embassy REIT’s portfolio, its Bengaluru assets are at an occupancy rate of over 90 per cent, and its entire development pipeline of 6.1 million square feet at an investment of Rs 3,800 crore is concentrated in this city | File image


India’s southern office market is experiencing exponential growth driven by increased interest from multinational companies, especially global capability centres (GCCs) and the information technology (IT) segment, in key cities such as Bengaluru, Hyderabad, and Chennai.

Real estate management firm JLL reports that the combined share of southern cities in India’s annual net absorption has remained between 54-56 per cent during 2022 and 2023, with a slight increase expected over the next two years. The tech sector is robust in these cities, with GCCs significantly driving office leasing activities, especially in Bengaluru and Hyderabad.


“Interesting to note, these three cities combined have a share of more than 66 per cent in the active request for proposals (RFPs) of 29-30 million square feet at the all-India level. Office demand for the three prime south Indian markets of Bengaluru, Hyderabad, and Chennai has been quite robust and moving from strength to strength. The tech sector is strong in these cities and the GCCs have been driving office leasing activities in a big way, particularly Bengaluru and Hyderabad,” said Samantak Das, chief economist and head of research & REIS, India, JLL.


In terms of new supply, the three south Indian cities – Bengaluru, Hyderabad, and Chennai – cumulatively accounted for about 65 per cent of new Grade A supply in 2023, according to Cushman & Wakefield. In Kerala, Kochi and Thiruvananthapuram emerged as two of the fastest-growing cities among India’s tier II cities.


“New GCCs set up in India, both greenfield and expansion by existing multinational company occupiers, touched a record high in 2023. The three south Indian cities cumulatively accounted for about 74 per cent of space leased for new GCC centres, led by Bengaluru and Hyderabad. In the first quarter of 2024, the share of south India jumped to 84 per cent in pan-India GCC space leasing volumes. South Indian tech cities remain the key driver of GCC activity in India and will remain so in the medium term. India is expected to witness the entry of over 100 new GCC companies in 2024 and 2025, and south India is likely to remain the destination of choice for many of them,” said Veera Babu, managing director, tenant representation, India, Cushman & Wakefield.


Within Embassy REIT’s portfolio, its Bengaluru assets are at an occupancy rate of over 90 per cent, and its entire development pipeline of 6.1 million square feet at an investment of Rs 3,800 crore is concentrated in this city.


“India’s office leasing market is on a steady growth trajectory, particularly in the south, where Bengaluru stands out as a frontrunner, commanding approximately 55 per cent of the active demand. Markets like Chennai are also booming, with absorption of around 9.4 million square feet in 2023,” said Aravind Maiya, chief executive officer, Embassy REIT.


WeWork, headquartered in Bengaluru, predicts significant growth in the southern market due to increased occupancy in GCCs. According to WeWork, Bengaluru, Hyderabad, and Chennai are becoming prime choices for GCCs, representing 60 per cent of entries into India over 12-15 months. Currently, 30 per cent of WeWork India’s members are GCC entities, indicating substantial future growth potential.


“In Bengaluru, the technology sector, particularly software and product development, is a major contributor, representing nearly 70 per cent of our member base. Meanwhile, Hyderabad is becoming a hub for operations and shared services, with a strong presence in the pharma, technology, and consulting sectors. Additionally, start-ups also continue to be a key component of our growth,” said Karan Virwani, chief executive officer, WeWork India.


WeWork aims to become the top choice for GCCs seeking innovative office solutions. With 27 locations and more than 44,500 desks in Bengaluru and Hyderabad, it dominates the southern region. Expanding its footprint, WeWork will launch WeWork Olympia Cyberspace in Chennai by early June, further solidifying its presence in the southern India office landscape.


Concorde Group attributes the strong real estate growth in south India to economic expansion, infrastructure, and thriving auto manufacturing and IT sectors. The group is investing Rs 25 crore to launch 2 million square feet of Grade A workspaces by 2025, addressing strong post-pandemic demand in Bengaluru.


Puravankara said the GCCs, engineering companies, and start-ups are engaging in expanding their current operations and are looking for assets with the highest levels of environmental, social, and governance (ESG) metrics. Puravankara’s southern market contributes about 60 per cent of its India business, with Bengaluru being the largest market. The company is currently in advanced discussions with large multinational and domestic companies for leasing the assets.


Mumbai’s Mindspace Business Parks REIT forecasts vigorous growth in south India’s commercial real estate market, notably in Hyderabad, fuelled by demand from GCCs. At Mindspace Madhapur, 57 per cent of leasable space is occupied by GCCs, with rising interest from domestic sectors. Mindspace Madhapur houses companies such as Cognizant, JP Morgan, Verizon, L&T, and Qualcomm.


For RMZ, south India continues to be an important part of its overall expansion strategy. “The assets in the three major south Indian cities – Bengaluru, Hyderabad, and Chennai – have witnessed significant interest and leasing. We are evaluating multiple opportunities for future assets. RMZ will continue its strong hold in these markets, while it amplifies its presence pan-India and in alternate assets,” said Thirumal Govindraj, chief executive officer, RMZ Office and RMZ NXT.

First Published: May 26 2024 | 2:41 PM IST