Amid robust office space absorption seen during 2022, vacancy levels across India’s 6 leading commercial markets dropped by 190 basis points year-on year to 16.6%, indicating strong recovery and stability in commercial office markets, shows a new report by property brokerage firm Colliers India.
“Albeit higher than pre-pandemic levels, vacancy levels have declined every successive quarter of 2022 as leasing momentum remained positive. Total leasing during the year was noted at 50.3 mn square foot (sqft), the highest in any year,” says the report, adding that occupiers went ahead with their expansion plans after having been in a wait-and-watch mode for two years.
While the year 2022 saw robust demand, there was some weakness in market activity in the fourth quarter of calendar year (Q4 2022) as occupiers took a cautious stance amid global recessionary conditions. As a result, gross absorption during the October-December period was about 21% lower than the average seen during the previous three quarters of 2022, says the report.
“It is encouraging to see the office market stabilising this year, with vacancies dropping after a gap of two years. Interestingly, BFSI companies have expanded rapidly this year, with Indian banks as well as global financial institutions leasing large office spaces,” says, Ramesh Nair, CEO, India, and managing director, market development, Asia, Colliers.
Leasing by BFSI almost doubled since last year, accounting for a 14% share in total leasing, equivalent to flex space. This resonates with the earnings boom seen in the BFSI sector this year. Mumbai witnessed the highest BFSI leasing at 40% share, as financial institutions made their comeback to offices, he adds.
On a cautious note for the future, the report points out that occupiers need to focus on providing agility and creating a dynamic workplace culture as they streamline their workplace strategies for coming years. Developers need to build collaborative and efficient office spaces with a greater focus on sustainability and technology to create stronger portfolios.
“We saw the resilience of the Indian office market against the global headwinds. While the occupier mix would evolve along with further monetisation of office buildings, 2023 would be a decisive year for office usage patterns and shall continue to be a mix with hybrid usage. As firms are adopting a cautionary stance for 2023, it is the right time to start preparing for a future generation of workforce and focusing to create progressive, flexible workspaces having a holistic outlook towards ESG,” says Peush Jain, MD, office services, Colliers India.
“2022 was also a notable year from a supply perspective. The year saw an infusion of 42.9 million sqft of supply, 23% higher than the previous year as developers focused on project completions. About half of the new supply was seen in Hyderabad and Bengaluru. In 2023, developers are likely to plan their ongoing and upcoming projects basis evolving demand trends to maintain overall market stability in terms of vacancy and rents.” says Vimal Nadar, head of research, Colliers India.
Leasing by flex space and BFSI sector doubles
Flex space operators leased 7 million sqft of space in 2022, highest in any year, accounting for about 14% share in total leasing. Flex operators are increasingly leasing offices in Grade-A spaces since last year, led by higher demand from large enterprises. Bengaluru and Pune remain the popular locations for flex space operators, contributing to more than 50% flex space take-up of the year. The year also saw increased office space taken up by BFSI, consulting and engineering firms. Leasing by these three sectors has doubled since last year, and also surpassed pre-pandemic times.
“The south markets – Bengaluru, Chennai, and Hyderabad – witnessed strong leasing during YTD 2022. Bengaluru has been the undisputed leader of office leasing in India for a while now and has maintained the streak in 2022 with 3.4 mn in Q4 2022. Overall, Bengaluru closed at 16.3 mn sf where gross absorption across the top 6 cities reached 50.3 mn sf, Hyderabad did 6.5 msn sf which is 10% higher than 2021 and Chennai accounted for 4.6 mn in 2022 which is 64% higher than 2021. The growth of southern cities is backed by robust demand from Tech and Flex players,” added Arpit Mehrotra, MD, office services, south India, and head of flex, India, Colliers.
