Developers need to build collaborative and efficient office spaces with a greater focus on sustainability and technology, says Colliers
NEW DELHI, Jan 3 (The CONNECT) - Amidst robust office space absorption seen during 2022, vacancy levels across the top six cities dropped by 190 basis points YoY, to 16.6%, indicating strong recovery and stability in commercial office markets, according to a Colliers report.
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 sq ft, the highest in any year. Occupiers went ahead with their expansion plans after having been in a wait-and-watch mode for two years, the report says.
While the year 2022 saw robust demand, there was some weakness in market activity in Q4 2022 as occupiers took a cautious stance amidst global recessionary conditions. As a result, gross absorption in Q4 2022 was about 21% lower than the average seen during Q1-Q3 2022.
“It is encouraging to see the office market stabilizing this year with vacancies dropping after a gap of two years,” said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.
Interestingly, BFSI companies have expanded rapidly this year, with Indian banks as well as global financial institutions leasing large office spaces. Leasing by BFSI almost doubled since last year, accounting for a 14% share in total leasing, equivalent to flex space, he said.
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, Nair said. Occupiers now 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. Whilst the occupier mix would evolve along with further monetization 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,” said Peush Jain, Managing Director, Office Services, Colliers India.
“Delhi-NCR recorded a growth of over 72% from the previous year. The pent-up demand of 2020 & 2021 led to a significant rise in the gross absorption for 2022. Although Q4 has seen a slight dip, it can be linked to the slowdown which is gradually creeping especially in the technology sector. Throughout 2023, hybrid office culture will continue to be a preferred option for occupiers and flex operators will have a bigger market share. North India is witnessing greater activity from flex operators even in tier 2 towns, apart from Delhi-NCR”, added by Bhupindra Singh, Managing Director, North, Colliers.
“2022 was also a notable year from a supply perspective. The year saw an infusion of 42.9 mn sq ft 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.
Flex space operators leased 7 mn sq ft 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, Managing Director, Office Services, South India & Head of Flex | India, Colliers
“2022 was a remarkable year for Pune’s commercial real estate with gross absorption witnessing significant recovery. Flex space leasing in Pune touched a new high during the year at 1.8 mn sq ft, grabbing the second spot in Pan India flex leasing, after Bengaluru. As occupiers make a more systematic return to the office and eye more flexible lease options next year, it will be interesting to see how the Flex market in Pune shapes up,” added Animesh Tripathi, Managing Director, Pune, Colliers.