India's Office Leasing Surges 20% in Q1 2024, Driven by Tech and Global Capability Centers

India's office leasing surges 20% YoY to 16.7 msf in Q1 2024, driven by tech and global capability centers. Embassy REIT reports record-breaking results, leasing 8.1 msf, with 65% from global firms. Positive outlook for office market, but residential sees moderation.

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Rafia Tasleem
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India's Office Leasing Surges 20% in Q1 2024, Driven by Tech and Global Capability Centers

India's Office Leasing Surges 20% in Q1 2024, Driven by Tech and Global Capability Centers

India's office leasing records growth of an impressive 16.7 million square feet (msf) in the first quarter of 2024, marking a 20% year-on-year growth, according to Savills India. The surge in leasing was primarily driven by the technology sector and global capability centers, with Bengaluru, Hyderabad, and Mumbai leading the pack.

Embassy Office Parks REIT, the country's first REIT and the largest office REIT in Asia, reported record-breaking results for the fiscal year 2024. The REIT leased a staggering 8.1 msf across 99 deals, exceeding its initial guidance of 6 msf by 35%. Over 65% of these leases were attributed to global capability centers, highlighting the growing demand for office spaces from international companies setting up their operations in India.

The REIT's net operating income (NOI) rose 8% year-on-year to ₹2,982 crore in FY24, while revenue also grew 8% to ₹3,685 crore. Embassy REIT has provided guidance for FY2025, projecting 5.4 msf of total leasing and distributions in the range of ₹22.40 to ₹23.10 per unit, implying a 7% year-on-year growth. The REIT maintains a strong occupancy rate, with 100% in Mumbai and 99.91% in Bengaluru, which together account for 86% of its total asset value.

Why this matters: The robust growth in office leasing activity in India, despite global economic challenges, underscores the country's attractiveness as a preferred destination for businesses, particularly in the technology and global capability center sectors. The success of REITs like Embassy Office Parks REIT further demonstrates the potential for real estate investment in India, attracting both domestic and international investors.

While the overall outlook for the office leasing market remains positive, India Ratings and Research (Ind Ra) has maintained a neutral outlook for the residential real estate sector in FY25. The agency anticipates support for absorption and prices from affordability and stable interest rates but forecasts a moderation in pre-sales growth to 8-10% year-on-year in FY25 due to rising prices and increased inventory levels, especially in the premium and luxury segments.

The growth of REITs and InvITs in India has been significant, with these investment vehicles mobilizing Rs 1.3 lakh crore since 2019-20 up to March 2024. The market regulator SEBI has taken steps to promote REITs and InvITs, including reducing the minimum investment size and trading lot to enable greater retail participation, paving the way for further growth in this sector.

Embassy REIT's CEO, Vikaash Khdloya, expressed confidence in the company's performance, stating, "We delivered our guidance for the 4th consecutive year since listing. We continue to see good traction for our quality properties, with a 5.4 msf leasing pipeline for the coming year." The REIT's strong results and positive outlook reflect the growing demand for Grade A office spaces in India's key cities, driven by the expansion of global companies and the thriving technology sector.

Key Takeaways

  • India's office leasing grew 20% YoY to 16.7 msf in Q1 2024, led by tech and global firms.
  • Embassy REIT leased 8.1 msf, exceeding guidance by 35%, with 65% from global capability centers.
  • Embassy REIT's NOI and revenue grew 8% YoY, with guidance of 5.4 msf leasing in FY2025.
  • India's residential real estate outlook is neutral, with 8-10% pre-sales growth in FY2025.
  • REITs and InvITs have mobilized ₹1.3 lakh crore since 2019-20, with SEBI promoting greater retail participation.