June 16, 2023: India’s office sector continues to dominate institutional investment inflows garnering over 44% in total investments in the last five years (2018-22), says the latest report by property brokerage firm Colliers India.
The report titled Global Insights & Outlook – Office shows that despite economic uncertainties and global slowdown, investments in the office sector remained unabated during Q1 2023 at $900 million, up 41% year-on-year (YoY).
“India remains a preferred market for global investors for office investments driven by growth opportunities in Tier-1 and Tier-2 cities, attractive and stable yields and strong demand in established markets. However, limited availability of quality office assets at attractive valuations has pushed investors towards creation of new platforms and joint ventures (JVs) with developers for development of new projects across larger markets. While there could be some slower fund deployment in short term amidst uncertain and cautious environment, India’s economic resiliency, supportive government policy and improving business environment will enable to maintain its position as an attractive market for global investors in the long term,” says the report.
“Amid global recalibrations of office space driven by cost control, hybrid work culture, and business slowdown, markets like India continue to benefit due to lower costs with quality of assets, talent pool availability, and increased institutionalized framework. Although global sentiments have reduced the Investor activity in India, institutional buyers remain bullish over the medium to long term as the underlying demand for Office space remains strong and markets like India benefit from the shift in office market dynamics,” says Piyush Gupta, managing director, capital markets & investment services.
Institutional inflows in office sector
| 2018 | 2019 | 2020 | 2021 | 2022 | Q1 2023 | |
| Investments in office sector ($ billion) | 3.2 | 2.8 | 2.2 | 1.3 | 2.0 | 0.9 |
| Share in total investments | 55% | 45% | 46% | 32% | 41% | 55% |
Source: Colliers
Office demand drivers in India
Office demand in India, says the report, has recovered faster despite persistent global headwinds in the form of economic disruptions and geopolitical tensions. The year 2022 saw 50.3 msf of office leasing across top-6 cities, which was the highest in any year. Q12023, however, started on a cautious note with a total leasing of 10.1 msf across top-6 cities, 19% lesser than same period last year. The technology sector led leasing during the quarter at 22% share, closely followed by flex space at 20% share. Flex spaces have emerged as a compelling alternative to traditional office spaces for occupiers, due to their ability to support occupiers’ evolving hybrid strategies.
“On account of robust office space absorption seen during 2022, office occupancy levels across the top-6 cities saw strong recovery and currently stand at 84%, well ahead of 80% in Asia Pacific and 65% in Europe. High occupancy levels indicate healthy recovery and stability of the Indian office market, despite persistent global demand headwinds. Going ahead, demand for office spaces will continue to remain strong, as offices will continue to support occupiers’ changing workplace needs. As demand improves towards the latter part of the year, higher occupancy levels will likely push rentals northwards in 2024, which remained largely rangebound for the last 2-3 years,” says Vimal Nadar, senior director and head of research, Colliers India.
Office space future
As hybrid working remains the mainstay for occupiers in India, relevance of physical office space remains intact. Occupiers are focusing on optimal locations, high-quality amenities and well-designed fit-outs as they look to create an enriching experience for their employees, the report says.
“Developers are increasingly taking cognizance of the evolving needs of occupiers and are integrating smart technology and sustainable infrastructure in their workspace offerings. Going forward, office space will continue to upgrade their workspaces through smart technologies such as the Internet of Things (IoT) and predictive analytics for cost optimization, carbon reduction and better space utilisation. As ESG becomes vital to occupiers, green financing will become an integral part of investors’ strategy,” it adds.
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