Office Demand Across Top 6 Cities Up 2% YoY– Colliers
Amid global economic headwinds, demand continued to grow on a sequential basis, indicating a continued occupier confidence, says Colliers.
Gurgaon, July 5 (The CONNECT) – As much as14.6 mn sq ft of gross office area has been absorbed across top six cities, during Q2 marking a 2% rise YoY, making a strong comeback after a cautious first quarter, A Colliers study shows. The top six cities are Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.
Amidst global economic headwinds, demand continued to grow on a sequential basis, indicating a continued occupier confidence. Bengaluru and Chennai led the demand during Q2 2023, accounting for about half of the total leasing across top 6 cities. After witnessing lackluster demand for the last few quarters, Chennai saw a three-fold rise in demand during Q2 2023 led by enhanced occupier activity.
Colliers (NASDAQ, TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 66 countries, our 18,000 enterprising professionals work collaboratively to provide expert real estate and investment advice to clients.
“Engineering, manufacturing, BFSI and Flex spaces have seen a strong rise in leasing, at 71% rise YoY in Q2 2023. This signals optimism along with growth in domestic consumption & investment, translating into office space demand. Flex spaces continue to gain larger ground, as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is starting on a promising note with resurgence in demand across geographies.” says Peush Jain, Managing Director, Office services, India, Colliers.
Key occupier trends in Grade A gross absorption (in million sq feet)
| Key Occupiers | Share in total leasing in Q2 2022 (%) | Share in total leasing in Q2 2023 (%) |
| Technology | 40% | 26% |
| Engineering & Manufacturing | 7% | 21% |
| Flex Space | 11% | 17% |
| BFSI | 14% | 15% |
| Consulting | 11% | 9% |
| Healthcare & Pharma | 2% | 4% |
| Others* | 15% | 8% |
Source: Colliers
Trends in Grade A gross absorption (in million sq feet)
| City | Q2 2022 | Q2 2023 | YoY change (%) |
| Bengaluru | 4.4 | 3.4 | -22% |
| Chennai | 1.1 | 3.3 | 197% |
| Delhi-NCR | 2.8 | 3.1 | 11% |
| Hyderabad | 1.9 | 1.5 | -22% |
| Mumbai | 2.8 | 1.6 | -41% |
| Pune | 1.3 | 1.7 | 28% |
| Pan India | 14.3 | 14.6 | 2% |
Source: Colliers
Technology and Engineering & Manufacturing sectors together dominated the office leasing activity in Q2 2023 contributing to 47% of the total leasing during the quarter. Leasing by Engineering and Manufacturing firms witnessed a three-fold rise YoY, as occupiers continued to take up larger spaces across top markets. Bengaluru and Chennai were the most preferred locations for engineering and manufacturing companies for their office expansions.
While share of Technology continued to dip from 40% in Q2 2022 to 26% in Q2 2023 amidst weak demand scenario, it remained dominant. At the same time, they continue to blend their real estate portfolio with flex as their core strategy, attracted by the flexibility, agility, and cost-effectiveness that they offer. Leasing by flex space surged 58% YoY during the quarter, as occupiers continued to adopt flex space as a long-term strategy.
Rental trends Pan India
| City | WAQ rent Q2 2022 (INR/sf/month) | WAQ rent Q2 2023 (INR/sf/month) | YoY change |
| Bengaluru | 90.6 | 91.9 | 1% |
| Chennai | 73.4 | 75.1 | 2% |
| Delhi NCR | 92.4 | 94.2 | 2% |
| Hyderabad | 73.7 | 73.6 | 0% |
| Mumbai | 139.9 | 140.2 | 0% |
| Pune | 75.6 | 76.7 | 1% |
| Pan India | 94.8 | 95.0 | 0% |
Note: Data pertains to Grade A office buildings
Weighted Average Quoted (WAQ) Rents are in INR per square feet per month for warm shell offices and do not include common area maintenance (CAM) or taxes.
Chennai surpassed Mumbai and Delhi-NCR in leasing
After witnessing subdued activity for last few quarters, Chennai saw heightened leasing activity during the quarter and accounted for about 23% of the total leasing in Pan India, at par with Bengaluru. This surge can be attributed primarily to the growing demand from technology and engineering & manufacturing occupiers. The city is also seeing rising interest from flex operators, who are expanding their market coverage across cities. Share of Flex space in total leasing of the city surged to 19% in Q2 2023, from mere 7% in Q2 2022.
Vacancy levels inched up led by exits and significant new supply
During Q2 2023, new supply across the top 6 cities increased 32% YoY, at 12.4 mn sq ft. Bengaluru witnessed significant new completions, contributing to 31% of the total new supply, followed by Hyderabad at 24% share. However, amidst robust supply, vacancy levels surged by 40 basis points (bps) on a YoY basis at 17.4%, as occupiers continue to consolidate their real estate portfolios to bring in cost and space efficiency while they adopt and build hybrid work models.
“Q2 2023 witnessed a significant rise of 32% YoY in new supply as demand continued to improve. As the market stabilizes further with improved demand towards the latter part of the year, developers are likely to speed up their project completions. Amidst improving demand conditions supported by relevant market supply, vacancy levels are expected to remain rangebound & stabilize, with a potential upside on rentals by the end of the year.” says Vimal Nadar, Senior Director and Head of Research, Colliers India.
Trends in Grade A new supply (in million sq feet)
| City | Q2 2022 | Q2 2023 | YoY change (%) |
| Bengaluru | 1.6 | 3.8 | 138% |
| Chennai | 1.0 | 2.4 | 136% |
| Delhi-NCR | 1.4 | 2.1 | 43% |
| Hyderabad | 3.8 | 3.0 | -19% |
| Mumbai | 1.0 | 0.2 | -79% |
| Pune | 0.6 | 0.9 | 52% |
| Pan India | 9.4 | 12.4 | 32% |
Source: Colliers
Amal Mishra, Co-founder, Urban Vault, a Bengaluru based managed co-working space provider, said Coworking segment, which includes managed office space, is having a dream run in the last two years, negating concerns related to its survival in view of wide-scale adoption of work from home (WFH), Work from anywhere and hybrid work culture.
Corporates of all sizes have been taking office space in coworking centres and they are looking to increase the share of flex space in their overall real estate portfolio.
Flexibility to scale up and scale down business, Saving of capital expenditure and avoiding hassles to manage real estate are major considerations for corporates while choosing coworking space, Mishra said.
There is a noticeable increase in the demand for high-quality office spaces, commonly referred to as Grade A office spaces, as both multinational corporations (MNCs) and domestic companies are increasingly favoring modern office environments over traditional setups, according to Mukul Sharma – Head Corporate leasing, Advance India Projects Ltd (AIPL)
This surge in demand extends beyond just the IT sector and is now observed across various industries such as manufacturing, FMCG and others.
Cities like Gurugram, Bangalore, Chennai, and others are witnessing a strong demand for Grade A office spaces that exceeds the current supply. This trend highlights the growing recognition and preference for contemporary workplaces that offer advanced amenities, state-of-the-art infrastructure, and an environment conducive to productivity and collaboration. At AIPL, we have observed that clients are willing to pay a premium for quality office spaces compared to prevailing rentals in the surrounding areas, Sharma explained.
Gagan Randev, Executive Director, India Sotheby’s International Realty, said
although the office market has been affected by economic challenges in global economies, there is good support from domestic companies. Many conglomerates are now embracing flex-office spaces due to the hybrid work model, minimal capital expenditure required, and the flexibility these spaces offer. Consequently, there is an increasing demand for such office spaces. This trend has resulted in low vacancy rates for flex-office space operators, he added.
