India office market defies global headwinds, Q4 net absorption scales new peak helping 2023 performance – The Economic Times

5 minutes, 8 seconds Read

The performance of the office real estate market across India’s top seven cities, despite the global headwinds, has set the platform to enter a phase of accelerated growth.
While net absorption in the first half of the year was subdued, the pace of expansion from corporates quickened in the latter half of the year, reaching unprecedented heights in the final quarter.

Net office space absorption in India’s top seven cities breached the 40-million-sq-ft mark and stood at 41.97 million sq ft in 2023. This not only marks a new post-COVID milestone but also ranks as the second highest annual absorption, trailing only the levels recorded in 2019, showed data from JLL India.


Buy/sell, rent/lease residential &
commercials real estate properties.

This growth was fueled by India’s talent and cost arbitrage, along with its growing reputation as an innovation and research & development hub. The capacity addition in terms of both office space and headcount further validates the confidence in India’s business environment.

“The current year is set to be entrenched as a pivotal chapter in the growth story of India’s office market… In a year marked by global headwinds, these achievements are a testament to the market’s strong underlying fundamentals and growth prospects. They also solidify India’s position and firmly establish its credentials as the ‘office to the world’’, said Rahul Arora, Head – Office Leasing Advisory and Retail Services, India.
According to him, the growth-oriented ecosystem in India continues to be a lucrative magnet for both domestic and foreign occupiers. Global corporations are channeling substantial investments into their India operations, while domestic occupiers are pursuing expansion strategies in response to this trend.

Popular in Services

Gross leasing in India’s top seven markets exceeded the 60 million sq ft milestone for the first time, reaching an impressive 62.98 million sq ft, a significant 26.4% on-year increase. Notably, the December quarter proved to be the busiest quarter ever, with gross leasing reaching 20.94 million sq ft.

Bengaluru and Delhi-NCR emerged as clear frontrunners in the market, accounting for 24.6% and 22.1% of the overall gross leasing in 2023, respectively. Chennai, the surprise package, followed with a significant share of 15.1%. Notably, it achieved a historic high of 9.50 million sq ft in gross leasing during the year. Hyderabad followed closely with 9.26 million sq ft. Mumbai and Pune followed in that order. Kolkata witnessed a resurgence in market activity with gross leasing recorded at a historic high of 1.90 million sq ft.

In the December quarter, Bengaluru maintained its leadership position with leasing activity amounting to 5.56 million sq ft, followed by Delhi NCR at 3.80 million sq ft. Chennai exhibited remarkable growth with quarterly leasing recorded at 3.41 million sq ft. Hyderabad and Mumbai also demonstrated strong activity, with 2.74 million sq ft and 2.70 million sq ft, respectively.

“India’s office market has demonstrated unmatched resilience and continues to defy global sluggishness, with strong underlying fundamentals supporting sustained growth in demand. Over the next 3-4 years, we anticipate that the market activity witnessed in 2019 will become the new norm. Net absorption levels in India’s office market will align more closely with 2019 levels, hovering in the 45-48 million sq ft range,” said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

According to him, the market activity is expected to be primarily driven by the entry of new GCCs into the country, along with existing GCCs expanding their operations. Additionally, India’s manufacturing policies are likely to attract high-end R&D work. Flex space providers are also expected to continue their momentum as they become an integral part of occupiers’ portfolio strategies.

GCCs and flex occupiers remain key drivers of leasing activity

India’s growth-oriented ecosystem continues to attract both domestic as well as foreign occupiers, as global corporations make significant investments into their India operations and domestic occupiers follow expansion strategies.

However, there has been a shift in demand composition, with the technology sector’s share decreasing to 20.9% in 2023, its lowest in over a decade. This decline can be attributed to the sluggish space take-up by third-party outsourcing firms, given global headwinds and slower revenue growth.

In contrast, there has been increased traction from the manufacturing/industrial and BFSI sectors, particularly through the establishment of GCCs. Both segments set new records in leasing volume, with each leasing 11.3 million sq ft of office spaces during the year.

Flex space providers also enjoyed greater occupier acceptance, leasing a historic high of 10.3 million sq ft. The consulting segment demonstrated robust demand as well, leasing ~6.1 mn sq ft, indicating sustained and secular demand across all major occupier categories.

In the December quarter, the technology sector witnessed a resurgence in space take-up, capturing a 23.2% share, followed by significant activity from the BFSI and the manufacturing/industrial segments. Flex space take-up was slightly slower during the quarter, accounting for a share of 13.6%. Nonetheless, the segment continues to witness strong momentum, driven by managed space operators and high demand from occupiers across various industries.

Grade A office stock completion, supply

Grade A office stock in the top seven cities achieved a significant milestone, surpassing 800 million sq ft, further solidifying India’s position as a prime destination for office spaces. In the fourth quarter of 2023, new completions kept pace with leasing activity, reaching 18.75 million sq ft. New completions during the quarter were headlined by Hyderabad which accounted for a 33.4% share, followed by Mumbai with an 17.8% share. Bengaluru and Chennai followed with 14.3% and 13.5% shares, respectively.

For the entire year of 2023, new completions stood at 53.64 million sq ft, a marginal decrease of 7.9% from a year ago. Hyderabad and Bengaluru combined to contribute 56.9% of the annual supply, with other significant contributors being Chennai and Delhi NCR.

Vacancy on a pan-India basis stands at 16.7%, a modest 10 bps sequential decrease. Core markets and superior quality institutional assets continue to find favour from occupiers resulting in significantly lower vacancy rates, usually in the single digits.

The pattern reflects occupiers’ clear preference for such premium assets that possess sustainability certifications and aligns with their organizational objectives of enhancing employee satisfaction, maintaining high health and safety standards, promoting efficiency, and implementing corporate net-zero strategies.

Net absorption is new space occupied after factoring vacated space. Gross leasing refers to all lease transactions recorded during the period, including confirmed pre-commitments, but does not include term renewals

This post was originally published on 3rd party site mentioned on the title of this site

Similar Posts

X
0
    0
    Your Interest
    Your Interest List is emptyReturn to Buying
    ×