- April-June’23 total office leasing grows by 12% Q-o-Q, touches 13.9 mn. sq. ft.
- 12.4 mn. sq. ft. office supply recorded in April-June’23,a 6% Q-o-Q increase
- 46% of completed projects were green-certified in the quarter
- Small- to medium-sized deals propel office leasing with 85% share in April- June’23
July 07, 2023: – CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm, on Friday, announced the findings of its latest office report, ‘CBRE India Office Figures Q2 2023’. The report highlighted that office leasing activity increased by 12% Q-o-Q and touched 13.9 mn. sq. ft. during the April-June’23 period. Bangalore, Chennai, and Pune led the absorption in Q2 2023, accounting for about 59% of the transaction activity.
During the quarter (April-June’23), technology companies witnessed an uptick in activity, accounting for 29% of the leasing, followed by flexible space operators (18%), engineering & manufacturing firms (17%) and BFSI corporates (17%). Leasing in the BFSI sector was driven by deal closures by global capability centres of BFSI corporates, Indian banks, and insurance firms. Most of these corporate are focusing on expanding their footprint.
Total office space supply stood at 12.4 million sq. ft. in April-June’23, an increase of 6% Q-o-Q. Hyderabad, Bangalore, Chennai led supply addition during the quarter, accounting for a cumulative share of 84%. The non-SEZ segment continued to dominate development completions in (April-June’23), SEZ supply accounted for 24% of the new developments, compared to 11% in (April-June’23). The report points out increasing focus of developers on sustainability, 46% of the newly completed developments during the current quarter were green-certified (LEED or IGBC).
Similar to the previous quarter, domestic firms continued to lead the absorption in April-June’2023 and H1 2023, accounting for a share of 43% and 46%, respectively. This was mainly led by flexible space operators, technology corporates and BFSI firms.
Small-sized (less than 10,000 sq. ft.) to medium-sized (10,000 – 50,000 sq. ft.) transactions drove office space take-up in April-June’23 with a share of 85% – a marginal increase on a Q-o-Q basis. The share of medium-sized deals increased to 54% in Q2 2023 from 48% in the previous quarter. In Q2 2023, the share of large-sized deals (greater than 100,000 sq. ft.) remained similar to Q1 2023 at 6%. Hyderabad dominated large-sized deal closures in Q2 2023, while a few such deals were also reported in Pune, Chennai, Bangalore, and Delhi-NCR.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said, “India is expected to be amongst the world’s fastest-growing economies amidst a likely weakening of global macroeconomic conditions. We believe that the share of domestic firms in leasing would also remain strong during the year; at the same time, their greater emphasis on return to offices (RTO) is also expected to boost their operations.
Occupiers’ concerns regarding global macroeconomic headwinds would persist in the short term. Nonetheless, favorable demographics, a high-skilled & cost-effective talent pool, robust technology & startup ecosystems, availability of high-quality office spaces at sub-dollar rentals, and beneficial government policies would continue to drive corporates’ real estate portfolio expansion in the medium to long term in India”.
Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India, said, “Occupiers continue to focus on bringing employees back to the office, even as hybrid working prevails across most sectors. Bangalore, Delhi-NCR, Chennai, and Hyderabad are expected to drive absorption in 2023, while Mumbai, Pune and Kolkata would also witness robust space take-up.
Some occupiers would also consider expanding to select tier-II markets, owing to improving infrastructure, availability of skilled talent and attractive rentals. While technology firms would continue to drive leasing activity in India in 2023, demand is also expected to become more diversified, with growth likely across sectors such as BFSI, flexible space operators and engineering & manufacturing”.
During Jan-June’23, leasing activity in the office sector declined by 12% Y-o-Y to about 26.4 million sq. ft. Further, absorption in Jan-June’23 was led by Bangalore, Chennai, and Delhi-NCR, which together accounted for 60% of the leasing. Bangalore, Hyderabad, and Delhi-NCR led supply addition in Jan-June’23 with a combined share of 68%. In H1 2023, about 24.2 million sq. ft. of supply was recorded, a decline of 4% Y-o-Y.
In H1 2023 (Jan-June’23), technology companies held the highest share in leasing activity at 24%, followed by BFSI firms (20%), flexible space operators (20%) and engineering & manufacturing firms (14%). Global multinationals accounted for about 63% of the total leasing by the technology sector during H1 2023.
Outlook & Other Observations
Sustained leasing activity anticipated despite global headwinds
- Occupiers continue to focus on bringing employees back to the office, even as hybrid working prevails across most sectors.
- In certain sectors, the additional workforce hired as compared to the quantum of office space leased may lead to occupiers continuing hybrid working to accommodate all their staff returning to the office.
- Technology firms would continue to drive leasing activity in India in 2023, demand is also expected to become more diversified, with growth likely across sectors such as BFSI, flexible space operators and engineering & manufacturing
- Owing to India’s cost and scale advantages, the country would continue to be the leading destination for global corporates to set up their global capability centres (GCCs)
- The share of domestic firms in leasing would also remain strong during the year; at the same time, their greater emphasis on return to offices (RTO) is also expected to boost their operations
Steady supply pipeline expected; ‘futureproofed’ assets essential for flight-to-quality demand
- A steady quantum of space would continue to be delivered in H2 2023, given the pipeline of quality assets
- Bangalore, Hyderabad and Delhi-NCR would continue to dominate completions, followed by Chennai, Pune, Mumbai and Kolkata
- For several occupiers, upcoming lease expiries and evolving ESG priorities are likely to spur flight-to-quality relocation to ‘futureproofed’ assets with sustainability features.
- Occupiers’ interest in investment-grade buildings in core locations is likely to continue, especially for projects by leading developers and institutional owners
- Going forward, vacancy rates are anticipated to be largely range-bound. Moderate rental growth in premium assets in select micro-markets is expected across most cities.
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