Mumbai leads office leasing activity in Q3 2023; records 50% YoY increase

October 3, 2023: Office space leasing in Mumbai was the highest among all cities in Q3 2023, according to a report titled CBRE India Office Figures Q3 2023 by real estate consulting firm CBRE South Asia. The office space absorption in Mumbai during the quarter stood at 3.3 million square foot (msf), an increase of 50% YoY compared to 2.2 msf in Q2 2022. The BFSI firms led the leasing activity in Mumbai with a majority share of 63%, followed by technology firms (10%) and engineering & manufacturing players (8%).

The report highlighted that Mumbai office space absorption was driven by small-sized (less than 10,000 sqft) deals. Furthermore, a 20% absorption share in the IT segment and 80% in the non-IT segment was recorded. The key transactions recorded in Mumbai during Q3 2023 include:

A leading BFSI company leased 1,600,000 sqft in Oberoi Commerz III
Upgrad Education leased 122,000 sqft in BKC 51
HDFC leased 100,000 sqft in One International Center – III

On a pan-India basis, office leasing activity across top nine cities increased by 33% YoY and touched 15.8 msf during Q3 2023. The share of BFSI firms constituted 29% of total leasing in the office sector during this quarter. During the Jul-Sep’23 quarter, leasing activity was also driven by technology companies, comprising a 23% share, followed by engineering and manufacturing companies (10%), life sciences firms (10%), flexible space operators (8%) and research, consulting and analytics firms (7%). American and domestic firms equally led the absorption in Q3 2023 with a share of 42% each. Mumbai, Bangalore and Hyderabad dominated the absorption in Q3 2023, collectively accounting for about 60% of the transaction activity.

In Q3 2023, the total office space supply across the top nine cities surged to 19.3 msf, recording a 94% YoY increase. Bangalore, Hyderabad and Pune dominated new completions with a share of 77%. The non-SEZ sector remained at the forefront of development completions in the quarter, increasing its share from 75% in Q2 2023 to 95%. According to the report, over half (53%) of the completed projects in Q3 2023 were green-compliant and received green certifications, such as LEED or IGBC.

Small-sized (less than 10,000 sqft) to medium-sized (10,000-50,000 sqft) transactions drove office space take-up in Q3 2023 with a share of 86%, which was largely stable on a quarterly basis. The share of large-sized deals (more than 100,000 sqft) saw a slight uptick, from 6% in Q2 2023 to 7% in Q3 2023. Bangalore and Hyderabad took the lead in large-sized deal closures during the quarter, with Chennai and Delhi-NCR following suit. A few other such transactions were also reported in Pune and Mumbai.

Office leasing in other top cities: Key highlights

Bangalore: Bangalore recorded absorption of 3.2 msf, with technology sector leading the leasing activity at a share of 38%, followed by BFSI (20%) and research, analytics and consulting (15%).

Hyderabad: Hyderabad recorded absorption of 3.1 msf, with the life sciences sector leading the leasing activity at a share of 30%, followed by BFSI (24%) and technology (23%).

Delhi-NCR: Delhi-NCR experiences sustained leasing activity and recorded absorption of 2.1 msf, with the technology sector leading the leasing activity at a share of 21%, followed by aviation (17%) and flexible space operators (14%).

Chennai: Chennai recorded absorption of 2 msf, with the engineering and manufacturing sector leading the leasing activity at a share of 28%, followed by technology (23%) and BFSI (20%).

Pune: Pune recorded absorption of 1.7 msf, with the BFSI sector leading the leasing activity at a share of 41%, followed by flexible space operators (18%) and technology (17%).

Anshuman Magazine, chairman and CEO – India, South-East Asia, Middle East and Africa, CBRE, said, “India’s office sector has outperformed expectations this year with sustained absorption, driven by optimistic occupier sentiment and a surge in inquiries. While the office sector in 2023 is likely to perform better than predicted at the beginning of the year, India has demonstrated resilience in the face of global economic challenges and remains one of the most attractive destinations for global corporations establishing their global capability centres (GCCs). Simultaneously, domestic companies, particularly in sectors such as BFSI and engineering & manufacturing, are displaying an increasing appetite for office spaces in major cities”.

“Bangalore, followed by Delhi-NCR, Chennai and Hyderabad, are expected to drive absorption in 2023, while Mumbai, Pune and Kolkata are also likely to witness steady space take-up during the year. Moreover, global and domestic technology firms and consulting companies are exploring opportunities in select tier-II markets, drawn by improved infrastructure, a skilled talent pool and attractive rental options,” he added.

Ram Chandnani, managing director, advisory and transactions services, CBRE India, said, “This year, we observe occupiers adopting a multifaceted approach that encompasses optimum strategies. Return-to-office plans are gaining traction, characterised by a concerted effort to craft experiential workplaces that cater to all generations of employees. This year, we anticipate a surge in investments in workplace technology, improved coordination across functions, and a heightened emphasis on transforming workspaces.”

“The popularity of flexible office spaces continues to rise, with an increasing number of occupiers indicating their intent to allocate more than 10% of their portfolios to these solutions. Above this, sustainability has transitioned from being an option to a priority. Leading occupiers are committing to achieve net-zero emissions by 2050, consequently driving demand for green-compliant buildings. This surge in demand has prompted developers to double their green-certified supply over the past seven years,” he added.

Outlook for office sector for 2023

Optimistic outlook for the Indian office sector in 2023, outperforming initial predictions.
Sustained absorption levels observed in Q3 2023, contributing to positive sentiment.
Anticipated moderation in absorption for 2023 to be less pronounced than expected.
Tenant inquiries and tour requests are on the rise, reflecting improved occupier sentiment.
APAC Leasing Market Sentiment Index remained above average in September 2023.
Focus on achieving operational efficiencies among occupiers with a prudent expansion approach.
Despite global economic challenges like monetary tightening and geopolitics, India’s infrastructure spending, domestic consumption, and bank credit growth continue to support economic growth.
Attraction of leading corporate global capability centres (GCCs) to India.
Increasing appetite for office spaces in top cities from domestic companies, particularly in BFSI and engineering & manufacturing sectors.
Expected absorption drivers in 2023: Bangalore, Delhi-NCR, Chennai and Hyderabad, with Mumbai, Pune and Kolkata also witnessing steady uptake.
Potential expansion of global and domestic technology firms and consulting companies into select tier-II markets, benefiting from infrastructure development, skilled talent pool and favourable rental options.

Outlook for office space supply in 2023

Strong supply pipeline driven by high-quality, investment-grade offerings in prime locations.
Focus on flight-to-quality absorption as a key trend.
Dominance of Bangalore, Hyderabad and Delhi-NCR in terms of completions.
Other markets such as Chennai, Pune, Mumbai and Kolkata also show promise.
Premium assets in well-located micro-markets with sustainability features to command premium pricing.
Anticipated alignment of demand and supply, resulting in stable vacancy rates.
Expectation of moderate rental growth in premium assets within select micro-markets across cities.

Hybrid working trends in 2023

Persistence of hybrid working models among occupiers.
Rise of the ‘office-first’ approach, emphasising collaboration and networking.
The majority favour ‘at least three days per week’ in the office.
Corporate focuses on partnership with developers for enhanced workplace experience.
Key areas of partnership: Amenities and services, facilities management, administrative support, sustainability and technology.

Return-to-office (RTO) trends in 2023

Occupiers increase their Return to Office (RTO) plans.
Anticipated rise in occupancies across different industry sectors and organisations.
Focus on creating experiential workplaces that cater to multiple generations.
Emphasis on amenities promoting employee health and wellness.
Key areas of focus for occupiers based on CBRE’s India Office Occupier Survey in Apr-Jun ‘23- increasing investment in worktech (63%), coordination among supporting functions (53%) and workplace transformation budgets (51%).

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