"Exponential Growth in South India's Office Market Driven by MNCs and Tech Sector"

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"Exponential Growth in South India's Office Market Driven by MNCs and Tech Sector"

Team Finance Saathi

28/May/2024

Key Points:

South India's office market sees significant growth, with Bengaluru, Hyderabad, and Chennai leading in office space absorption.
GCCs and the IT sector are major drivers of office leasing activities, with a record high in new GCC setups in 2023.
These three cities account for the majority of new Grade A office supply, with South India being a prime destination for future GCC investments.

South India’s office market is witnessing unprecedented growth, propelled by increased interest from multinational companies (MNCs), particularly through the establishment and expansion of global capability centres (GCCs) and a booming information technology (IT) sector. This trend is notably pronounced in the southern cities of Bengaluru, Hyderabad, and Chennai, which have become pivotal hubs for office space absorption and leasing activities in India.

According to recent reports by the real estate management firm JLL, the combined share of Bengaluru, Hyderabad, and Chennai in India’s annual net office space absorption has consistently remained between 54% and 56% over 2022 and 2023. This share is expected to see a slight increase over the next two years, reflecting the robust demand in these markets. The tech sector in these cities, bolstered by the presence and expansion of GCCs, has been a significant contributor to this trend. Particularly in Bengaluru and Hyderabad, GCCs are driving a substantial portion of the office leasing activities.

Mr. Samantak Das, the chief economist and head of research & Real Estate Intelligence Service (REIS) at JLL India, highlighted that these three cities combined hold more than 66% of the active request for proposals (RFPs) for office spaces, which amounts to approximately 29-30 million square feet at the all-India level. This indicates a strong and sustained demand for office space in these prime southern markets.

In terms of new office space supply, these cities have also been leading the way. Data from Cushman & Wakefield reveals that Bengaluru, Hyderabad, and Chennai cumulatively accounted for about 65% of new Grade A office supply in 2023. This influx of high-quality office space is set to cater to the growing demand from both domestic and international companies looking to establish or expand their operations in South India.

Moreover, the trend of setting up new GCCs in India reached a record high in 2023, with a substantial portion of this activity concentrated in the southern cities. Approximately 74% of the space leased for new GCC centres was in Bengaluru and Hyderabad, underscoring their dominance in this sector. The first quarter of 2024 saw this share jump to 84% of the pan-India GCC space leasing volumes, further cementing the position of South Indian cities as the key drivers of GCC activity in the country.

Mr. Veera Babu, Managing Director of Tenant Representation at Cushman & Wakefield India, emphasized that the momentum in South Indian tech cities will continue in the medium term. The country is expected to witness the entry of over 100 new GCC companies in 2024 and 2025, with a significant number of them likely to choose South India as their base of operations. The region’s well-established infrastructure, availability of skilled talent, and supportive business environment make it an attractive destination for these companies.

Kerala’s cities, Kochi and Thiruvananthapuram, have also emerged as two of the fastest-growing cities in India’s Tier II league, showing potential for significant office market development. This growth in Tier II cities indicates a broader trend of decentralization and diversification of office spaces beyond the traditional metropolitan hubs.

The exponential growth in South India’s office market is a testament to the region’s thriving business ecosystem and its ability to attract and retain high-value investments from global players. The continuous influx of MNCs and the expansion of GCCs and the IT sector are set to sustain this growth trajectory in the coming years. As these cities continue to evolve and expand, they will likely remain at the forefront of India’s office market landscape, driving innovation, economic growth, and employment opportunities.

For businesses and investors, the southern Indian cities of Bengaluru, Hyderabad, and Chennai represent significant opportunities for growth and expansion. With the ongoing development of new office spaces and the steady increase in demand from global and domestic companies, these markets are poised for continued success. As we look ahead, the future of South India’s office market appears bright, promising sustained growth and dynamic opportunities for all stakeholders involved.

Also Read : Emerging Markets of India and Indonesia Set for Economic Boom, Attract Global Investors

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"Exponential Growth in South India's Office Market Driven by MNCs and Tech Sector"

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