Office absorption rises to 3-year high on strong demand

The commercial real estate market hit drastically by the Covid19 pandemic has made a strong comeback in 2022 with steady recovery in demand for office spaces across key cities of India.

The office property market has not only shown resilience but also overcome the pandemic-driven challenge of the work-from-home model and emergence of hybrid work formats to register a record performance.

The demand pipeline for office real estate and pre-commitments continue to be healthy and is expected to propel the performance further in 2023.

India’s office market net absorption across the top seven cities for the full year rose 46% to 38.25 million sq ft, a three-year high. The performance has surpassed the five-year pre-pandemic average (2015-2019) by 3.1% as well and is second only to the 2019 net absorption numbers for the past 10 years, showed data from JLL India.

“India’s momentum as an actively growing office market with new job creation, its established and further-growing credentials as a tech and innovation hub, companies’ expansion plans remaining intact, and more firms looking at India from a talent perspective are all strong growth drivers for the office market to have put in such a performance for 2022,” said Rahul Arora, Head Office Leasing Advisory India & MD, Karnataka & Kerala at JLL India.

A strong year with record-high completions and previous pre-commitments being honoured by most occupiers as return to work has gained momentum across all industries pushing office occupancies higher, has supported the net absorption during the year.

“There have been almost 8 lakh net new hires in the IT sector that would lead to an increased office demand. Employees have returned to office and the job market has rationalized post the disorder over the last 2 years. Increasing growth in services and consulting sectors and with their inherent apprenticeship culture, training and physical presence will continue to play a key role in office demand,” said Quaiser Parvez, CEO, Nucleus Office Parks, a Blackstone Group entity.

According to him, the number of global capability centers (GCCs) will continue to increase with additional 400 new centres expected in the next 3 years. The Indian tech sector’s revenue is expected to increase by 84% from $190 billion in 2020 to around $350 billion with digitization services expected to increase 4 times from 2020 to 2025. All of this will lead to a strong demand for offices, and 2023 is also expected to see nearly 50 million sq ft gross leasing.

“Next fiscal, leasing growth will be supported by key factors. The IT/ITeS sector that accounts for 45% of India’s office leasing space, will continue to witness low single digit employee addition in the current and next fiscal. Physical occupancy at offices across sectors, will increase from 30-50% at present. The Indian economy will remain resilient and sectors such as BFSI, consulting, engineering, pharma, and e-commerce, accounting for 30% of India’s office area, will add office space,” said Anand Kulkarni, Director, CRISIL Ratings.

The information technology and IT-enabled services sector had hired aggressively in the last fiscal as well, taking its employee base up 15%. Return-to-office for the expanded employee base will continue to require more office space.

Additionally, according to Kulkarni, while the anticipated slowdown in global economies may result in temporary deferment of leasing decisions, on the brighter side, it increases the probability of more offshoring to India, which is a low-cost centre.

Gross leasing activity for the year 2022 rose to 49.41 million sq ft as the business environment supported on-ground real estate activity with occupiers approaching their portfolio strategies with more clarity. In fact, gross leasing activity for 2022 was 84% of the 2019 highs, signalling a robust post-Covid revival in market activity during the year.

Mumbai, Bengaluru and Delhi NCR accounted for a 23.5%, 19.6%, and 18.8% share of gross leasing activity during the fourth quarter.

For the year, the technology segment led with a 27.6% share in leasing followed by flexible office players with 18.5% and manufacturing & industrial with 13.9% shares, respectively.

During the year, new completions reached a new historic high for the Indian office markets at 58.27 million sq ft. The pan-India vacancy levels have risen to 16.6%, up 60 bps sequentially with a stronger supply infusion compared to expansion-driven occupier activity. Vacancy going forward as well is expected to remain sticky within this range of 16-17%.

The future supply pipeline is strong, moderate to strong pre-commitments in the upcoming projects and expectations of leasing activity to pick up steam by the second half of 2023 will support the net absorption projection and keep vacancy within range.


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