December 02, 2023

Fresh surge in office space demand

The demand for office spaces has started moving firmly northwards again. Gross leasing across the leading cities of the country in the second quarter of this year almost touched 13 million sq ft, according to market experts, clearly defying international trends and once again underlining the resilience of India’s commercial real estate sector.

With such high absorption rate, the momentum is expected to sustain itself over the rest of the year as well, and Kolkata has been one of the pace-setters in this surge along with Bengaluru and Pune. While average office rents in the city rose by almost 2.8% year-on-year, the spike in the first six months of this year itself has almost touched double digits.

Combined occupancy at the twin tech hubs of Kolkata – Sector V and Rajarhat – has been holding steady over 80% post-pandemic, figures unheard of in the past decade, say property agents. Such is the bullishness in the commercial real estate segment following a clutch of tech biggies making a beeline for these two hubs that some developers fear demand could soon outstrip supply.

While Infosys and ITC Infotech are both building their new campuses in Rajarhat, they have already taken up interim office space and others like Mindtree, Zensar, Calsoft, ArcelorMittal are all checking in, one after another. This buoyancy has pushed up rentals to above Rs 42 per sq ft for just the shell and to nearly Rs 60 per sq ft for furnished and fitted office space lease, as large floorplates are increasingly hard to come by.

In fact, the near-10% jump in rent for office space in Kolkata is the highest among the eight leading office markets in the country, driven by high demand in Sector V and Rajarhat. Interestingly, the traditional office districts of BBD Bag, Chowringhee, Park Street, Camac Street, etc have been left behind in this rent revolution, clearly underlining the slant towards Sector V and Rajarhat.

Experts feel a strong economy, rapid expansion in the IT/ITeS sector, flourishing of Global Capability Centres and a healthy growth in the start-up ecosystem have all combined to propel this demand. Add to that the back-to-office wave and the call for more workstations keeps getting louder.

Also, gleaning out lessons from the pandemic, most employers are now looking to decongest work spaces, budgeting for extra legroom keeping in mind employee health and wellness as they scramble to manage the return-to-work flow. This itself has pushed up demand for new office spaces by up to 30%. Quite a few realtors are even prepared to walk the extra mile in terms of creating healthy and sustainable work spaces by opting for LEED and WELL certification.

Interesting to note, Kolkata has the highest ratio for transaction of smaller office spaces, with over 70% demand for spaces below 50,000 sq ft, followed by Chennai and Mumbai. Small or large, with the country’s GDP projected to grow at 7-8%, this resurgence in demand for office space is expected to sustain itself in the coming years.

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