India’s office space absorption reached its highest point in 18 months totalling 10.37 million square feet in Q3. The manufacturing sector led the way in terms of leasing activity, whereas technology companies exhibited a somewhat more cautious approach.
Image Credit: Pixabay
Office space absorption refers to the rate at which office spaces in a particular market or area are leased or occupied by businesses and organizations. It measures the demand for and utilization of office properties within a given time frame. High absorption indicates a strong demand for office spaces, while low absorption may suggest a sluggish or oversupplied market.
In the third quarter of 2023, India’s office real estate market witnessed a remarkable resurgence, with office space absorption reaching its highest point in 18 months, totalling 10.37 million square feet. This surge was driven by various factors, including the manufacturing sector’s strong leasing activity and the growing demand for flexible workspaces.
The net absorption of office spaces during the quarter was higher in the top seven cities except Chennai and Kolkata. Hyderabad took the top spot with a 26.1% share, followed by Bengaluru at 22.9% and Delhi-NCR at 16.4%.
However, when taking a look at the year-to-date comparison for 2023, there was a slight dip of 13.9% compared to the same period in 2022. This dip was due to companies postponing their expansion plans and focusing on optimizing their portfolios in light of global economic challenges. Nonetheless, these firms remain optimistic about their long-term real estate plans in India. It’s worth noting that JLL India’s full-year forecast remains unchanged, falling within the range of 36 to 39 million square feet.
In Q3 2023, gross leasing activity across the top seven cities reached 16.03 million square feet, marking a significant 26.4% increase compared to the previous quarter. This quarterly figure even surpassed the average leasing activity seen in 2019, a year known for historic highs in the Indian office market. This trend underscores the strong and resilient demand for office spaces within India’s business ecosystem.
Hyderabad and Bengaluru emerged as the frontrunners in the office leasing landscape during the third quarter, collectively commanding a substantial share of 52.1% in gross leasing activity. Hyderabad, in particular, stood out with a remarkable surge, experiencing a threefold increase in leasing activity compared to the previous quarter. This impressive growth underscores Hyderabad’s growing prominence as a key business hub.
Delhi-NCR also played a significant role in office leasing, contributing 18.6% to the overall leasing activity. Chennai followed closely, contributing 11.4%, further highlighting the diverse and dynamic nature of India’s office real estate market. These cities, known for their robust economic activities, continue to attract businesses and occupiers, solidifying their positions in the competitive office leasing arena.
In Q3, the manufacturing sector emerged as the primary driver of office space absorption in India, commanding an impressive 18.6% share. This shift can be attributed to the government’s pro-manufacturing policies, a skilled engineering workforce, and the sector’s resilience in the face of economic uncertainties. These factors have led to a surge in demand for office spaces in industrial areas and business parks, making manufacturing a compelling choice for businesses looking to establish or expand their operations.
The technology sector experienced a notable decline in leasing activity during the same period, marking the first time in a decade. Third-party IT firms, key players in this sector, have been reevaluating their real estate needs, partly due to the rapid adoption of remote work and a shift toward more flexible office solutions. Economic uncertainties and a cautious approach to expansion have further contributed to the decline, emphasizing the evolving dynamics in India’s commercial real estate market.
Flex space refers to adaptable office arrangements where businesses can rent workspace as needed, providing flexibility and cost efficiency compared to traditional long-term leases.
In Q3 2023, the demand for flexible and managed enterprise services remained strong, with approximately 39,600 seats leased by flex space occupiers. On a year-to-date basis for this year, the flex space sector has already reached 80% of the total seats leased in 2022. Bengaluru and Delhi-NCR were the major contributors, accounting for over 50% of the flex space seats leased by occupiers in the third quarter of 2023.
The third quarter of 2023 witnessed the completion of 14.44 million square feet of new office spaces, marking a substantial 37.7% increase compared to the previous quarter. Among these completions, Bengaluru, Hyderabad, and Chennai, known as the three tech gateway cities, led the way, collectively making up 71.6% of the new completions in Q3. A significant portion of pre-commitments during the quarter came from new completions in Pune, where 46% of the supply had already been pre-committed, followed by Mumbai at 42%.
Despite new completions outpacing net absorption, the office vacancy rate in Pan-India has seen a slight increase of 20 basis points, reaching 16.8%. JLL India estimates that although net absorption is expected to remain strong, the office vacancy rate is likely to remain within the range of 16-18%. Additionally, high-quality and superior-grade projects will continue to attract occupiers, resulting in better occupancy levels.
Rahul Arora, Head of Office Leasing Advisory at JLL India, emphasized that the performance of India’s office market in Q3 underscores the robust demand fundamentals and the absence of any lasting impact from global challenges, except for delayed decision-making. He noted that India’s tech ecosystem, driven by strong offshoring and R&D activities across various sectors, played a significant role. Global Capability Centers (GCCs) accounted for a 44% share of occupiers in Q3, further highlighting the growth potential of Indian office markets.
In Q3 2023, India’s net office absorption achieved its strongest quarter in 18 months. While consolidation remained a dominant factor in net absorption, prior commitments were honoured, and new space acquisitions remained healthy during the quarter. With ongoing deal closures, it is likely that net absorption figures will align with the forecasts of 36-39 million square feet for 2023.
India’s office real estate market showcased remarkable resilience and growth in the third quarter of 2023. Office space absorption reached its highest point in 18 months, signifying robust demand. Hyderabad and Bengaluru emerging as leaders in gross leasing activity, with strong manufacturing sector contributions. Flex space leasing remained on an upward trajectory, nearing 2022 levels.
Despite new completions, office vacancy rates saw a marginal uptick, staying within the 16-18% range. The market remains optimistic and primed for sustained growth, driven by dynamic economic activities and favourable policies, highlighting its resilience in the face of global challenges.
You must be logged in to post a comment.
Stay ahead in the dynamic world of trade and commerce with India Business & Trade's weekly newsletter.