 "Office space")
The last quarter of 2023 witnessed India's highest-ever demand for office spaces, with three southern cities of Bengaluru, Chennai and Hyderabad registering their best performance since the Covid-19 pandemic.
The fourth quarter of 2023 has propelled India's office leasing market to unprecedented heights, culminating in a record-breaking 58.2 million square feet of gross absorption, according to a report by Colliers India.
While Bengaluru and Delhi NCR drove leasing activity during 2023, accounting for about half of the total demand for office space in India, Chennai made it to the top three list for the first time, according to data analysed by property consulting firm Colliers.
Trends in Grade A gross absorption (in million sq feet)
Trends in Grade A gross absorption (in million sq feet)
Source: Colliers
Note- Gross absorption: does not include lease renewals, pre-commitments and deals where only a letter of Intent has been signed. Top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune
With more than 2x leasing activity in 2023 as compared to 2022, Chennai breached all earlier highs and recorded 10.5 mn sq ft of gross absorption.
With more than 2x leasing activity in 2023 as compared to 2022, Chennai breached all earlier highs and recorded 10.5 mn sq ft of gross absorption.
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"Indian commercial real estate and office markets will continue to witness steady interest from domestic as well as foreign-origin occupiers. Increased preference for a combination of core and flex real estate space, heightened activity in tier II markets, and next-gen offices with more sustainable elements will be the key themes for office markets in 2024." said, Arpit Mehrotra, Managing Director, Head of Office services, Colliers India.
Tech demand rationalizing
The contribution of tech sector in office leasing has steadily decreased to just 25 per cent in 2023 from around 50 per cent in 2020. While demand emancipating from tech occupiers rationalized, the overall leasing activity continued to diversify. The sectoral contributions from BFSI and Engineering and manufacturing sectors especially have almost doubled, increasing from 10-12 per cent in 2020 to around 16-20 per cent in 2023. Interestingly, in 2023, leasing by Engineering and Manufacturing players (26% share) surpassed the demand emancipating from Technology firms (22% share) in the tech hub of Bengaluru.
Demand from Flex operators remained unabated; at 8.7 mn sq ft flex spaces uptake in 2023 was 24% higher as compared to 2022. Flex penetration in the Indian office market is expected to rise further in 2024, as developers are likely to adopt core plus flex strategy for decision-making.
Resurgence in large deals
After a brief pause, occupier confidence in the business environment has translated into large office space requirements. At around 30 mn sq ft., large deals (>100,000 sq ft) have shown a 24 per cent annual growth in 2023. Global Capability Centres (GCCs) typically have large space requirements, and they too resumed their expansionary activities with greater fervor towards the second half of 2023, especially in the fourth quarter. Almost 40% of the large deals in the top six cities have come from GCCs, particularly from the technology and BFSI sectors.
Top deals in the last quarter of 2023
Top deals in the last quarter of 2023
“Large sized of 100,000 sq ft or more have contributed to almost 50% of the overall office space demand in India. Interestingly, more than half of the large GCC deals achieved closure in last quarter of 2023, indicating renewed momentum in GCC activity of the country. A large pool of talent, cost-effective rentals, adequate Grade A developments and favorable office market ecosystem will continue to uphold India’s vantage positioning from a capability centre perspective. Moreover, healthy demand from domestic firms across technology, BFSI, manufacturing, healthcare and flex spaces will result in equally strong demand of office spaces in 2024.” said Vimal Nadar, Senior Director and Head of Research, Colliers India.
Top deals of the year
Top deals of the year
Rentals go up
With 50.1 mn sq ft. of new completions, fresh supply across the top six cities rose about 17 per cent on year, indicating higher developer confidence for near-term space uptake. While Bengaluru accounted for 35% of the new completions in 2023, Hyderabad followed in closely with almost 30% share at an India level. Given strong performance on both demand and supply side, vacancy levels remained rangebound. Average rentals meanwhile increased by up to 5% across most
Indian cities.
