August 24, 2023: India’s office sector is expected to close stronger at 40-45 million square foot (msf) of gross leasing across the top six markets in 2023, 15%-20% higher than predicted in March 2023, according to Colliers’ latest report India office market- Changing winds. The year started on a cautious note registering 10.1 msf of gross absorption in the first three months (Q1 2023), and then saw a relatively faster recovery in the second quarter. Q2 2023 registered 14.6 msf of leasing activity, marking a growth of around 50% QoQ.
Grade-A gross absorption in top six Indian cities
| City | Q1 2023 | Q2 2023 | QoQ change | Forecast for 2023 |
| Bangalore | 3.2 msf | 3.4 msf | 5% | 12-14 msf |
| Delhi-NCR | 2.2 msf | 3.1 msf | 41% | 9-11 msf |
| Chennai | 1.6 msf | 3.3 msf | 113% | 7-9 msf |
| Hyderabad | 1.3 msf | 1.5 msf | 19% | 4-6 msf |
| Mumbai | 1.0 msf | 1.6 msf | 61% | 4-6 msf |
| Pune | 0.8 msf | 1.7 msf | 109% | 4-6 msf |
| Pan India | 10.1 msf | 14.6 msf | 46% | 40-45 msf |
Peush Jain, managing director, office services, India, Colliers, said, “Macro-economic indicators have been displaying consistent positive signals. Certain parameters have become more emphatic in recent months. While repo rates have probably entered a stable phase, GST collections, manufacturing and service indices and equity markets in general have been reflecting strong undercurrents of accelerated momentum. The momentum is likely to continue in the second half of the year and ultimately result in better than anticipated office market performance in 2023. Q2 2023 has already set the tone for a stronger 2023, and the year is expected to witness 40-45 msf of gross leasing across the top six cities”.
During H1 2023, the technology sector led the office space demand with a share of 24%, followed by flex space and engineering and manufacturing sectors at 18% and 17% respectively. The pattern of demand drivers underscore the growing prominence of these sectors, which have displayed a consistent uptick in demand since 2020.
Vimal Nadar, senior director and head of research, Colliers India, said, “Sectors such as technology and BFSI have seen over 50% QoQ growth during Q2 2023 while demand from engineering and manufacturing has surged two-fold over the preceding quarter. The services and manufacturing PMIs also registered significant peaks in 2023, indicating healthy growth of these critical demand sectors going forward. As the occupier confidence improves further, leasing momentum across pivotal sectors is likely to continue in the second half of the year.”
At the global level, the economic forecast for 2023 is modestly higher than predicted in April 2023, pulled by marginal improvements in the US, UK and Europe. With the USA, Europe and the UK being major sources of business for India, a positive change in their economic outlook is likely to have a perceptible positive impact on India’s office market outlook for 2023 and beyond.
The optimism observed in the demand side is mirrored by a palpable positive shift in the supply side. H1 2023 saw 22 msf of new supply across top six cities, registering a 31% rise during Q2 2023 compared to the first quarter. Colliers predicted a growth of 10-20% YoY in supply in H2 2023. This growth trajectory is indicative of the developers’ responsiveness to the changing market dynamics and increasing demand for quality office spaces. 2023 is likely to see robust supply aligned with the anticipated space uptake across major office markets, vacancy levels to be range bound leading to a potential rental upside. While the overall office market is likely to see balanced growth towards the second half of the year, certain key micro-markets are likely to witness heightened activity.
