With the much-awaited Union Budget 2025 set to roll, the commercial and office real sector in India has reached another inflexion point.
Also Read :Banks, FIs Adopting Digital-First Approach To Ensure 24/7 Access To Services: PNB
Authored By Peush Jain:
With the much-awaited Union Budget 2025 set to roll, the commercial and office real sector in India has reached another inflexion point. This segment has changed drastically evolved with hybrid working, number of days in office, carbon neutral commitment by companies, ESG (environment, social and governance) model and beyond 9-5 working!
Looking Ahead, anticipation: Will this Union Budget 2025-26 lay a foundation to unlock the true potential of the country’s office space demand?
Also Read :February 2025 Bank Holidays: Banks To Remain Closed For 14 Days, Check State-Wise List
The CRE sector is not just a space-leasing business. It is the backbone of urban economic growth because it facilitates jobs and innovation hubs, which fuel further progress and prosperity. However, the next growth phase requires policy inputs to support infrastructure, tax rationalisation, and sustainable development.
The following are some paths for Budget 2025 to change the office leasing landscape.
1. City Infrastructure that Empowers Office Leasing
Well-structured city infrastructure is the bread and butter of thriving business centres. Bengaluru, Hyderabad, and Gurugram have already taken the lead in office leasing, but to sustain long-term growth, infrastructure development must keep pace with the rapidly rising demand. Smart city integration with office hubs can play a crucial role in boosting inclusive growth, ensuring seamless connectivity and future-ready workspaces. Additionally, tax SOPs similar to SEZs for new smart cities could incentivize businesses to expand into these emerging hubs, driving balanced economic development across regions.
Also Read :8th Pay Commission Pay Hike: Check Minimum And Maximum Salary Recommended By 7 Previous Pay Commissions
Metro expansions and smart city initiatives are the future investments the government has been making, but Budget 2025 needs to allocate more funds to these initiatives—be it in terms of urban transport, connectivity, data centers, or transit-oriented projects. This will not only enhance accessibility but also foster an integrated ecosystem for offices catering to modern businesses and innovation hubs.
2. Reduction in GST on Office Leases and Input Credits
Currently, renting commercial spaces attracts an effective GST rate of 18%, leading to hefty occupancy costs and posing a financial hurdle for businesses looking to lease high-quality office spaces. Rationalization and reduction of GST on rent would not only boost space absorption but also reduce the overall cost of occupancy. Additionally, providing clarity on whether lease expenditures qualify as input tax credit could further incentivize businesses to expand, significantly accelerating leasing activity in the market.
Similarly, coworking operators, who captured nearly 20-25% of leasing in 2024, would greatly benefit from concessional GST rates. With more startups and smaller enterprises opting for flexible workspaces, a reduction in taxes on this segment would further accelerate its growth. Additionally, allowing input tax credit on fit-outs would ease capital expenditure burdens for occupiers, making high-quality, customized office spaces more accessible and financially viable.
Also Read :Gold, Silver Prices Fall On January 29: Check Precious Metal Prices In Your City Today
3. Industry Status for Commercial Real Estate
For years, the CRE sector has been advocating for industry status, which would enable access to easier financing options, lower borrowing costs, and structured regulatory support. Recognizing commercial real estate as an industry would significantly boost investor confidence, facilitate large-scale developments, and streamline governance processes. By granting industry status, the government would position the sector for long-term sustainable growth, unlocking new investment opportunities and strengthening its contribution to the economy.
4. Supporting the Flexible Workspace Revolution
Flexible workspaces have evolved into a fundamental part of the office leasing ecosystem, appealing not just to startups and MSMEs but also to large corporates that prioritize flexibility and shorter tenures over traditional long leases. Given this shift, Budget 2025 can play a crucial role in fostering this market by introducing monetary incentives such as waiving registration fees, offering funding schemes, or providing tax benefits to coworking operators.
Additionally, a relook at stamp duty rates is essential to further ease leasing transactions and make flexible workspaces more accessible. Moreover, with rapid advancements in infrastructure, particularly IT-driven changes, the depreciation and amortization rates for office assets need to be reassessed to align with the evolving lifecycle of workspace investments. These measures will not only spur leasing activity but also encourage entrepreneurship and innovation within dynamic office ecosystems.
5. Boosting ESG and Green Office Practices
Global occupiers increasingly prefer ESG-compliant office space. The green-certified buildings and energy-efficient designs not only create an eco-friendly environment but also save on operating costs.
By giving tax rebates or subsidies to the developer who invests in ESG-compliant office spaces, the government can enhance the trend. Tax benefits to the occupiers who take on a lease for such properties can lead to the adoption of sustainable workspaces.
Also Read :Petrol, Diesel Fresh Prices Announced: Check Rates In Your City On January 29
6. Growth of Tier-2 and Tier-3 cities as leasing centres
Though the metro cities lead in the overall leasing, Tier-2 and Tier-3 cities have started gaining ground for cost-sensitive users. However, infrastructure, including quality office stock, lags in such cities compared with metros.
Budget 2025 can fill this gap by offering tax incentives to developers while constructing Grade-A offices in the non-metro market. Similarly, occupiers shifting to these cities could be offered relocation incentives or reduced taxes which could boost demand and infuse life into local economies.
7. REITs Potential
Real Estate Investment Trusts (REITs) have transformed the landscape of CRE investments, enabling retail investors to take part in this growth story. However, high stamp duties and complex tax structures on REIT dividends are deterring widespread adoption. Further promoting SME REITs for retail investors can unlock new investment opportunities and diversify the market.
Streamlining these processes will attract more investors and developers to monetize their commercial portfolios. This will then create a virtuous cycle of investment and leasing activity.
8. Reducing Vacancy Rates and Repurposing Office Spaces
Overall office vacancy is still at around 16.5% for the country as a whole, while secondary and tertiary markets are hit.
Repurposing underutilized office spaces into coworking hubs, data centers, or mixed-use developments could be a game-changer. The government could also explore the interplay of different usage models by setting up a subcommittee to assess and implement strategic repurposing initiatives.
Speedy approvals for construction and efficient clearances for new office projects will enable timely supply deliveries, which may help level market imbalances.
9. Digital Infrastructure for the Modern Workplace
With hybrid work models being the new norm, businesses require offices that are enabled with cutting-edge digital infrastructure. High-speed internet, AI-driven building management systems, and smart workspace designs are no longer add-ons; they are must-haves.
Budget 2025 must invest in the urban digital infrastructure of the country, starting with emerging cities, to fulfil these demands. Tech-enabled office spaces could then be incentivized through tax breaks, with developers encouraging innovation in designing their spaces.
A Transformation Budget for a Transformative Sector
The office leasing market is at an inflexion point as we approach 2025. While the post-pandemic recovery has had its share of challenges, it has also created opportunities for innovation, sustainability, and growth.
Budget 2025 has all the ingredients of change. This will not only address the structural challenges but focus on ESG principles and strengthen the emerging markets to herald in a new commercial real estate age. This is not a matter of policies alone but giving the office spaces a future of driving the economy for India.
CRE is not a standalone entity; it is an intricate interplay of infrastructure, human resources, technology, and the ever-evolving youth power. To fulfill our promise of Viksit Bharat, we need inclusive growth and strong government support to achieve this vision.
(The author is managing director-commercial leasing and advisory, ANAROCK)
