‘India to see explosion in demand for office space in 12-18 months’

That is an unfair comparison because 2022 was an outstandingly phenomenal year from an office absorption perspective. There was some kind of pent-up demand from 2020 and 2021, which hit us in 2022, the markets were extremely busy, and companies were anticipating a return to office. In 2023, the return to office was not as fast as people anticipated and that affected the planning. It is only toward May-June of this year that we have seen a strong return to office.

Toward the end of 2022 and early 2023 the higher interest rate cycle kicked in, global economies slowed down. Any new acquisition of office or movement of office needs a lot of capex, so CFOs around the world felt that it was not the right time to spend because money was expensive. So companies started cutting back on non-essential expansion of office space.

If you look at the headcounts of top firms in India, compared 2019 they have grown by 50 per cent on an average in headcount and some have doubled. Now that the return to office has become relatively stronger, it is on an employee base which is 50-70 per cent higher than in 2019. They need more office space, which is the activity you are seeing right now.

In the third and fourth quarters we’ll see pretty decent activity. I think what we are seeing is that possibly in 2024, demand will increase. What we have to watch out for is the interest rate cycle. The moment the interest rates start to come down – and that is likely to be towards the middle or end of 2024 – by that time companies would have hired more and there would be lot more outsourcing from US and other places. That clearly needs capital and capital needs to be cheaper and once that starts, we’ll have an explosion of demand or office space. I would say we are 12-18 months away from an explosion of demand.”

There is not enough stock of premium buildings, we are heading for a supply crunch of Grade A-plus buildings, which are the most sought after. All across the world, one theme is pretty common – premium buildings are in demand. There is no supply remaining because it is all taken up and the rents are rising. You may probably see temporary solutions of staffing in older buildings or hybrid working solutions. Occupiers will be signing pre-leases and pre-commitments in areas where there are no vacancies available. We should see a rise in pre-commitments toward the end of 2024.

There are good strong institutional developers in India – both private equity players as well as builders. You will see an increase in investment, the allocation towards commercial office space is likely to come to India. But remember that PE money is also competing with high returns in safer investments such as treasury bonds, so while we may not see billions and billions of dollars coming in, those who are wedded to the market will invest in India because this is a good, bright spot for the world.