Due to severe downturns in the global economy in 2023, the commercial real estate market saw a 66% annual decline in investments. Significant markets such as the US and Europe saw a 25% decline in leasing activity. The global commercial market is in crisis mode! 

The Indian commercial real estate market, on the other hand, attracted $5.4 billion in investments, the most since 2020, the year before the pandemic, demonstrating remarkable growth and resilience. The office sector in India has been particularly vibrant, drawing over $3 billion in investments, a 53% increase from the previous year. The growth in demand from Global Capability Centers (GCCs) and the strong leasing activity of Indian corporations, which now make up 46% of all market leasing activities, are the main drivers of this surge. 

India’s office sector is growing primarily due to demand from the GCCs. India’s GCCs are expanding rapidly as international corporations look for cost-effective outsourcing solutions in the face of economic pressure. With a projected 10% compound annual growth rate (CAGR), the GC industry is predicted to rise from its current $465 billion by 2027. With a 30% market share in the GCC overall, India employs up to 2 million professionals.

The GCC model is evolving, with hubs driven by technology and customer experience replacing centers primarily concerned with standardization and cost arbitrage. This pushes these developments to increase the spending per square foot and the space per square foot, which raises the investment in Grade A commercial real estate even more.

There is plenty of room for growth because only 40-45% of Fortune 500 companies currently have GCCs. Our estimates indicate that India will have 3.5.-4 million workers employed in GCC countries over the next three to four years, implying a doubling of the Grade A space needed, given the country’s demographic advantage (we will add 80-90 million people to the working age population by 2027).

The increasing percentage of domestic investors and capital entering this market relative to previous foreign capital inflows is another interesting development. Prequin data reveals a dramatic fall in foreign fund activity in India in light of the geopolitical unrest and state of global interest rates. The Indian real estate market is resilient despite these obstacles, and a growing proportion of ultra-high-net-worth individuals and family offices are among this new class of investors.

Approximately Rs. 3 trillion has already been invested by these investors, who are drawn to the regulated environment of Alternative Investment Funds (AIFs) and the tangible security of asset-backed investments. This has a significant impact on the real estate market. This change highlights a dynamic shift in investment patterns, encouraging the sector’s growth to be driven more domestically.

Tier 2 towns will likely emerge as new centers of development and investment in commercial real estate. The Fortune 500 companies’ headquarters are dispersed across 51 cities in the US, whereas in India, the major corporations are centered in just 5-6 cities. Although the infrastructure for transportation has advanced significantly, these cities urgently require an upgrade to their urban infrastructure to improve their quality of life and draw in more businesses and workers.

As investment flows increase twofold to tier 2 cities, pioneering firms are shifting their focus to undeveloped land parcels in these cities. For local and regional developers, this trend underscores the importance of enhancing their offerings and attracting foreign investors.

Through this realignment, not only will Tier 1 cities be addressed, but diversified and sustainable, urban development will be enabled across the nation. As we move forward, these changes are expected to play a crucial role in shaping the real estate investment landscape over the coming years, heralding a new era of growth beyond the traditional hubs.  

The Indian commercial real estate market, on the other hand, attracted $5.4 billion in investments, the most since 2020, the year before the pandemic, demonstrating remarkable growth and resilience. The office sector in India has been particularly vibrant, drawing over $3 billion in investments, a 53% increase from the previous year. The growth in demand from Global Capability Centers (GCCs) and the strong leasing activity of Indian corporations, which now make up 46% of all market leasing activities, are the main drivers of this surge. 

India’s office sector is growing primarily due to demand from the GCCs. India’s GCCs are expanding rapidly as international corporations look for cost-effective outsourcing solutions in the face of economic pressure. With a projected 10% compound annual growth rate (CAGR), the GC industry is predicted to rise from its current $465 billion by 2027. With a 30% market share in the GCC overall, India employs up to 2 million professionals.

The GCC model is evolving, with hubs driven by technology and customer experience replacing centers primarily concerned with standardization and cost arbitrage. This pushes these developments to increase the spending per square foot and the space per square foot, which raises the investment in Grade A commercial real estate even more.

There is plenty of room for growth because only 40-45% of Fortune 500 companies currently have GCCs. Our estimates indicate that India will have 3.5.-4 million workers employed in GCC countries over the next three to four years, implying a doubling of the Grade A space needed, given the country’s demographic advantage (we will add 80-90 million people to the working age population by 2027).

The increasing percentage of domestic investors and capital entering this market relative to previous foreign capital inflows is another interesting development. Prequin data reveals a dramatic fall in foreign fund activity in India in light of the geopolitical unrest and state of global interest rates. The Indian real estate market is resilient despite these obstacles, and a growing proportion of ultra-high-net-worth individuals and family offices are among this new class of investors.

Approximately Rs. 3 trillion has already been invested by these investors, who are drawn to the regulated environment of Alternative Investment Funds (AIFs) and the tangible security of asset-backed investments. This has a significant impact on the real estate market. This change highlights a dynamic shift in investment patterns, encouraging the sector’s growth to be driven more domestically.

Tier 2 towns will likely emerge as new centers of development and investment in commercial real estate. The Fortune 500 companies’ headquarters are dispersed across 51 cities in the US, whereas in India, the major corporations are centered in just 5-6 cities. Although the infrastructure for transportation has advanced significantly, these cities urgently require an upgrade to their urban infrastructure to improve their quality of life and draw in more businesses and workers.

As investment flows increase twofold to tier 2 cities, pioneering firms are shifting their focus to undeveloped land parcels in these cities. For local and regional developers, this trend underscores the importance of enhancing their offerings and attracting foreign investors.

Through this realignment, not only will Tier 1 cities be addressed, but diversified and sustainable, urban development will be enabled across the nation. As we move forward, these changes are expected to play a crucial role in shaping the real estate investment landscape over the coming years, heralding a new era of growth beyond the traditional hubs.