War and AI force India Inc to rethink huge office deals

New Delhi: Large office leasing deals across India's top cities are taking longer to close as companies reassess expansion plans amid geopolitical uncertainty and growing questions around AI-led workforce disruption, executives said. Multiple large corporates that were in active discussions for office space have put decisions on hold, with leaderships adopting a cautious approach.

"We are witnessing a slight lengthening of decision cycles in some markets, but not an outright withdrawal of demand. Large occupiers are recalibrating timelines as their boards take a more measured view of capital commitments amid global volatility," said Anshuman Magazine, CEO, India, South-East Asia, Middle East and Africa, CBRE.

Carbon-neutral workspace provider CG Offices saw an FMCG transaction get impacted. "Corporate occupiers are clearly becoming more measured in their office space decisions, and larger deals are taking longer to close as companies assess costs, growth visibility and workplace strategy more carefully," said Vibhor Jain, CEO of CG Offices.

"Quality assets in prime locations continue to outperform-a prominent Golf Course Road building is looking at rental growth despite the broader market telling you that quality and location remain decisive," he added. Leasing growth is expected to be mainly supported by double-digit growth from the flexible workspaces sector who are undertaking large capacity additions to meet rising demand.

Unlike during the Covid-19 pandemic, construction activity and labour availability continue to remain stable. Experts said the areas to watch this year may be input costs across logistics, energy and key materials such as steel, aluminium, copper and electrical equipment.

"While the underlying demand for quality office space remains resilient, evolving global macroeconomic and geopolitical dynamics are causing occupiers and investors to adopt a more measured approach to decision-making, leading to longer evaluation and commitment timelines across certain segments of the market," said Anurag Mathur, CEO of Savills India. According to Crisil, the vacancy level in India's Grade A commercial office space is expected to decrease by approximately 50 basis points (bps) to 15.5-16.0%.

The current global uncertainties and challenges that could emanate from AI-led disruptions, do pose risks to projection of decline in vacancy levels.

The net leasing is expected to grow at 6-7% this fiscal. However, this is exposed to risks related to disruptions in the IT/ ITeS sector on account of AI, which may impact hiring and expansions. Increased geopolitical uncertainties and tariff-related issues, too, may impact the leasing plans of GCCs," said Gautam Shahi, senior director at Crisil Ratings. While these pose short-term challenges, India's long-term structural advantages, including skilled talent pool, cost competitiveness, policy-level support from central and state governments and broader economic stability, are expected to help sector tide over the hiccups.

"Healthy markets go through phases of recalibration periodically, and real estate is no exception," CBRE's Magazine said. "Conviction during uncertain phases tends to be rewarded. Buyers and occupiers who committed in 2020-21, when sentiment was at its weakest, secured some of the best terms and values of the decade," he added.

Office fit-out and construction costs in India are seeing sustained upward pressure due to a combination of higher steel and cement prices, inflation in imported materials, labour shortages and wage inflation, and rising MEP, HVAC, and technology integration costs.

"Cost escalation is visible in Grade-A office developments and premium workplace fit-outs, where the focus is not just on delivering space, but on creating high-performance places aligned with global occupier standards and long-term value creation," said Mathur of Savills.