July 6, 2023: Office demand during the second quarter of the year 2023 (Q2 2023) increased to a gross absorption of 14.6 million square foot (msf) across the top six cities, marking a YoY increase of 2%, as reported by Colliers. Bangalore and Chennai led the demand during April 2023 to June 2023, accounting for about half of the total leasing across top six cities. Chennai saw a three-fold rise in demand during the quarter led by enhanced occupier activity.
Trends in Grade A gross absorption
| City | Q2 2022 | Q2 2023 | YoY change (%) |
| Bangalore | 4.4 msf | 3.4 msf | -22% |
| Chennai | 1.1 msf | 3.3 msf | 197% |
| Delhi-NCR | 2.8 msf | 3.1 msf | 11% |
| Hyderabad | 1.9 msf | 1.5 msf | -22% |
| Mumbai | 2.8 msf | 1.6 msf | -41% |
| Pune | 1.3 msf | 1.7 msf | 28% |
| Pan India | 14.3 msf | 14.6 msf | 2% |
Technology, engineering and manufacturing sectors together dominated the office leasing activity, contributing to 47% of the total leasing during Q2 2023. Leasing by engineering and manufacturing firms witnessed a three-fold rise YoY. Bangalore and Chennai were the most preferred locations for engineering and manufacturing companies for their office expansions.
While the share of the technology sector continued to dip from 40% in Q2 2022 to 26% in Q2 2023, it still remained dominant. At the same time, they continue to blend their real estate portfolio with flex as their core strategy, attracted by the flexibility, agility and cost-effectiveness that they offer. Leasing by flex space surged 58% YoY during the quarter, as occupiers continued to adopt flex space as a long-term strategy.
Peush Jain, managing director, office services, India, Colliers, said “Engineering, manufacturing, BFSI and flex spaces have seen a strong rise in leasing, at 71% rise YoY in Q2 2023. This signals optimism along with growth in domestic consumption and investment, translating into office space demand. Flex spaces continue to gain larger ground, as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is starting on a promising note with resurgence in demand across geographies.”
After witnessing subdued activity for the last few quarters, Chennai saw heightened leasing activity during Q2 2023 and accounted for about 23% of the total leasing in Pan India, at par with Bangalore. The city is also seeing rising interest from flex operators, who are expanding their market coverage across cities. The share of flex space in total leasing of Chennai surged to 19% in Q2 2023 from 7% in Q2 2022.
During Q2 2023, new supply across the top six cities increased 32% YoY, at 12.4 msf. Bangalore witnessed significant new completions, contributing to 31% of the total new supply, followed by Hyderabad at 24% share. However, amidst robust supply, vacancy levels surged by 40 basis points (bps) on a YoY basis at 17.4%, as occupiers continue to consolidate their real estate portfolios to bring in cost and space efficiency while they adopt and build hybrid work models.
Trends in Grade A new supply
| City | Q2 2022 | Q2 2023 | YoY change (%) |
| Bangalore | 1.6 msf | 3.8 msf | 138% |
| Chennai | 1.0 msf | 2.4 msf | 136% |
| Delhi-NCR | 1.4 msf | 2.1 msf | 43% |
| Hyderabad | 3.8 msf | 3.0 msf | -19% |
| Mumbai | 1.0 msf | 0.2 msf | -79% |
| Pune | 0.6 msf | 0.9 msf | 52% |
| Pan India | 9.4 msf | 12.4 msf | 32% |
Vimal Nadar, senior director and head of research, Colliers India, said, “As the market stabilises further with improved demand towards the latter part of the year, developers are likely to speed up their project completions. Amidst improving demand conditions supported by relevant market supply, vacancy levels are expected to remain range-bound and stabilise, with a potential upside on rentals by the end of the year.”