 "office, real estate")
At 38 million square feet (msf), the demand for office space in the top six Indian cities in the first nine months of 2023 (January-September) was 4.5 per cent lower than 39.8 msf in the same period last year, real estate consultancy Colliers said on Friday. Bengaluru and Delhi-NCR led the demand, accounting for nearly half of India's total demand for office space till September.
In the July-September quarter, the office space leasing activity across the top six cities was 13.2 msf, 2 per cent higher than the 12.9 msf demand in the same quarter last year. The demand is slightly higher than the 12.6 msf demand in the average quarterly demand since 2022.
Interestingly, driven by tech-based occupiers, the southern cities of Bengaluru, Hyderabad and Chennai accounted for about 57 per cent of the demand till September this year.
"While Chennai's demand rationalised, Hyderabad witnessed a strong 64 per cent quarter-on-quarter (QoQ) growth in gross leasing. Although Bengaluru will continue to dominate India leasing activity in 2023, Chennai and Hyderabad are likely to see greater demand acceleration in the last quarter of the year," said Arpit Mehrotra, managing director (Office services, South & Head of Flex), Colliers India.
Colliers also said that while foreign companies had been driving the office space demand pre-pandemic, domestic occupiers have become active influencers in India's office market since 2022.
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"Despite the global economic volatility, domestic occupiers accounted for almost half of the office space take-up in 2023. While tech occupiers both domestic and foreign, prolonged their real estate portfolio level decisions, domestic companies especially from the engineering & manufacturing, BFSI, pharma & healthcare and flex spaces stepped up and took up incremental office space across the top six cities of India," it said.
The tech sector continues to drive the demand with a 25 per cent share in year-to-date (YTD) leasing. Demand is now more broad-based, spanning across sectors. The shares of flex spaces, engineering & manufacturing, and BFSI sectors have seen sectoral gains by up to 6 percentage points (pp) each.
"Flex spaces, especially, continue to perform well in 2023, as occupiers continue to prefer dynamic working arrangements for their portfolios," it said. Bengaluru and Delhi-NCR were the most preferred locations for flex players for their expansion.
"With strong domestic macro-economic indicators backing the demand for office space, the momentum is likely to continue in the last quarter of the year. It would be interesting to see if 2023 could breach the historic high leasing activity of 2022," said Peush Jain, managing director (Office services, India), Colliers.
In 2023, the office vacancy levels are expected to be similar to 15-20 per cent in 2022 as the supply is in line with the demand. According to Vimal Nadar, senior director and head of research, return to office augurs well for the near-term office space demand.
"While there is a healthy supply pipeline for the next few years, developers have been cautious of infusing supply in tandem with market demand dynamics. Vacancy levels since 2022 have been in the range of 15-20 per cent across most cities, signalling stability in occupancy levels," he said.
"Consequently, rentals are likely to remain firm across key micro markets."
