January 2, 2024: The Indian office sector recorded the highest gross lease volume (GLV) across top eight cities in the fourth quarter of 2023 at 27.4 million square foot (msf), a 84% growth than the previous quarter and a 48% Y-O-Y growth, according to a report by Cushman & Wakefield on Q4 office data. The report also mentioned that this is not only the highest quarterly GLV, but it also surpassed the previous record high volume of Q4-2019 by a significant 4.5 msf margin. The gross leasing volume, which factors in all leasing activity in the market, including renewal of contracted term by corporates, is an indication of overall market activity. The total leasing for 2023 now stands at a new annual peak of 74.7 msf, piping the 2022 GLV volume, which was a historic high, by about 4%, the report said.
The report mentioned that, fuelled by a shift in the global as well as India macroeconomic sentiment, many occupiers who were cautious during the previous quarters were seen seeking closure on their office requirements in Q4. Larger deals gradually made a comeback post three quarters of quagmire as average deal sizes in Q4 jumped 37% as compared to the average deal sizes recorded in the last three quarters.
According to the report, this rise in office demand is mainly driven by fresh leasing and, in certain cases, completion of buildings with good pre-commitments being brought forward, leading to a healthy level of net absorption during Q4-23. With the active pipeline of deals, this momentum in fresh space leasing is expected to continue over the next couple of quarters.
The net absorption, which is a barometer of real demand or expansion of occupied space in the market, also recorded its highest volume ever – 18.6 msf across the top 8 cities for the quarter. This is a 129% growth Q-O-Q and 106% growth on a Y-O-Y basis. For the entire year, the net absorption stood at 41 msf, which is merely 2 msf less than the highest net absorption volume seen in the Indian office sector so far in 2019, the report highlighted.
Office leasing trends on city level
Bangalore recorded three times the office leasing volumes as compared to last quarter. The city registered a growth of 21% over its previous peak of Q2-2022 volume, with over 8.3 msf of leasing volume in Q4-2023. Further, the city accounted for over 40% of the country’s overall net absorption, with demand for fresh space driven by E&M sector (30%), followed by IT-BPM (22%), professional services (13%) and flex space operators (9%). With return-to-work of employees picking up faster in sectors such as E&M, Prof. Services and BFSI, therefore, the requirement for space by these sectors seems to precede IT-BPM, the report highlighted.
Moreover, Chennai also witnessed record leasing, with the volume for the quarter standing at around 3.5 msf, a growth of 96.8% Q-O-Q. When compared with the Q4 numbers of 2022, Chennai witnessed a significant growth of 109%. Mumbai’s office market has also shown good traction with 54% & 15% quarterly and yearly growth, respectively, as per the data by Cushman & Wakefield.
Sectors contributing to leasing volume in Q4
The report stated that the market is witnessing diversification, with the share of the usually dominant IT-BPM sector being recorded at merely 20% in GLV. Engineering & Manufacturing (E&M) sector, on the other hand, stood tall, nearly rubbing shoulders with IT-BPM sector with a 19.2% share, followed by BFSI with around 16% share. GCCs and Flex sector took near-about 9.5-10% share each in GLV.
From a point of view of new completions and vacancy across the top eight markets, around 18 msf of new supply came in this quarter, setting a record. The last time such a large-scale supply hit the market during one single quarter was in Q2-2019 at about 19.5 msf. The entire year saw a total of 48 msf of new supply come into the market across top-8 cities, which is short of around 2 msf when compared with the previous year. Nearly 55% of the Q4 supply came in two leading tech cities – Bangalore and Hyderabad, with the next biggest chunk coming into Delhi-NCR and Pune. Despite a large volume of supply during the quarter, the vacancy rate for Grade-A offices largely remained unchanged at 18.4%, clearly indicating the influence of a healthy demand in the market.
Anshul Jain, managing director, India & South East Asia and Head of Asia Pacific Tenant Representation said, “We have always maintained that the fundamentals of India’s office market are strong. While we anticipated a healthy performance this year despite global headwinds and economic uncertainties, Q4 and the entire year 2023 have exceeded even our most optimistic projections and turned out to be the best one ever. A turnaround in the economic growth outlook for India in Q4, coupled with resilience seen in the global economy, could be a factor for fence-sitting occupiers to move ahead swiftly. These record-breaking numbers are a testament to the evolving needs of businesses and the increasing attractiveness of India’s office market. We anticipate a healthy and strong pipeline for India’s office sector in 2024 as well.”
Veera Babu, managing director, Tenant Representation, India, said, “This is the second consecutive year when gross leasing in the office real estate sector has crossed the 70 msf mark, recording a 4% growth over the landmark numbers of 2022. This potentially signifies a sustained period of growth aligned with the country’s long-term economic trajectory. We have also seen a paradigm shift: the previously IT-BPM dominated landscape is now giving way to a much more diversified range of industries fuelling the office sector growth. A significant rise in the E&M and GCCs share in GLV is potentially indicating at office market’s response to a gradually diversifying economy.”
* GLV = all leasing activity in the market, including renewals of contracted term by corporates
*Net absorption = new space occupied during the period (quarter/ year), adjusted for exits, if any
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Harini is a content management professional with over 12 years of experience. She has contributed articles for various domains, including real estate, finance, health and travel insurance and e-governance. She has in-depth experience in writing well-researched articles on property trends, infrastructure, taxation, real estate projects and related topics. A Bachelor of Science with Honours in Physics, Harini prefers reading motivational books and keeping abreast of the latest developments in the real estate sector.
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