As the world emerges from the shadows of the pandemic, India's office real estate sector stands tall, showcasing its uncorrelated nature to global office real estate as well as its untapped potential. A joint industry report by CREDAI & CRE Matrix forecasts that high-quality office space in India's top six cities will reach 1 billion square feet by 2030, having already surpassed the 700 million square feet (msf) mark in the first quarter of 2023. In comparison, US has high quality office stock of roughly 6 billion square feet, which presents India with a wealth of opportunities for investors and businesses alike.
India - The fastest-growing major economy in the world
India's GDP grew by 7.2% in the year ending Mar'23 and 8.7% in the year ending Mar'22 displaying a sharp comeback from the pandemic lows and strong resilience of the Indian economy against economic headwinds. World Bank forecasts India to be the fastest growing economy among the top 5 economies in FY24. In fact, various international brokerages estimate that India's GDP will more than double from ~$3.3 tn to surpass ~$7 tn by 2030. This GDP boost will be accompanied by stronger office demand and India's office market will be instrumental in enabling this growth.
Operating costs in Indian offices have remained low in USD terms
One of the major advantages that India's office space sector holds is its affordable pricing. At approximately US$1 per square foot, office real estate in India is considerably more cost-effective when compared to other countries. As per a study by NASSCOM, operating costs of offices in the US Tier-II cities are as high as seven times of the cost in Bangalore (India's largest office market). This significant cost arbitrage makes the Indian office market attractive to most MNCs. Even over the last decade, when the Indian office market has evolved from the nascent stage, while the rents have gone up 4-6% annually, the rupee has depreciated against the dollar at a similar rate making relocation to India just as attractive as it was earlier.
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India is an established Global Capability Centre (GCC) Market
India continues to remain the most important market globally for GCCs which have transitioned gradually from cost centres handling back-end technology implementations to profit centres driving innovations in areas such as AI, data analytics, and cyber security. EY estimates that by 2030, the number of GCCs will increase from 1,600 to 2,400 which would further drive India's office market. The size of India's office space market indicates that there is ample room for growth and development in India, offering a wide range of opportunities for investors and developers. As businesses continue to rebound and expand their operations, the demand for office spaces is expected to grow steadily.
India has the third largest tech talent pool
The surge in digital transformation and the growth of startups has led to an increased demand for modern, tech-enabled workspaces. Office complexes equipped with cutting-edge technology, high-speed internet, and state-of-the-art amenities have become a magnet for companies seeking a competitive edge. Additionally, India currently has a tech pool of about 3.8 million, just third behind the USA (4.4 million) and China (4.2 million). With India's share of the working-age population expected to reach 68.9% of the total population by 2030, there will be a huge influx of young, English-speaking, and digitally savvy Indians joining the tech talent pool, further boosting India's tech demand.
India’s improved regulatory framework
The introduction of the REIT regulations in India has been crucial in driving investments in the office market in India. Since the introduction of the REIT regulations, $27 billion has been invested in Indian real estate by institutional investors and 4 REITs have been listed till date. As per Cushman & Wakefield, the Indian REIT office market is expected to increase substantially from 74.4 msf of office space, currently being held by 3 listed office REITs, to 180 msf of office space by 2024, accounting for 22% of Grade A stock. The increased institutional demand has incentivized developers to construct high quality assets to eventually sell to a REIT or list their own REIT and the improved office infrastructure has in turn attracted MNC tenants to continue to expand in India.
These are some of the underlying factors driving the ongoing boom in India's office market, which has seen strong demand from both domestic and international players. The sector presents lucrative opportunities for investors and developers, with a potential for market leading returns. While challenges such as rising real estate costs and infrastructure issues still need to be addressed, overall, the outlook for India's office space sector continues to looks promising, with steady growth and development expected in the near future.
The article has also been published on TheHindu.com on 10th November, 2023 (https://www.thehindu.com/real-estate/real-estate-office-properties-construction/article67307291.ece)
