Flex operators lease as much office space as tech cos in Jan-March quarter

• Flex space occupiers leased 2.1 million square feet in Q1 2023, which accounted for 20% of total leasing.
  
  
• While leasing activity dropped by 19% YoY in Q1 2023, it’s expected to pick up in the latter half of the year.
  
  
• During Q1 2023, vacancy levels in three out of the top six cities in India remained steady compared to Q4 2022.
  

An impending recession and economic challenges have softened office space leasing in the first quarter of 2023, says a Colliers report. The office sector leasing in top six cities stood at 10.1 million square feet in Q1 2023, which is 19% lower than what it was in the same quarter last year.

While the general mood is that of caution, flex operators who gain from the dynamic nature of the business have increased their leasing. So much so, they leased as much as tech companies in the quarter.

Flex space occupiers leased 2.1 million square feet of space during Q1 2023, which accounted for 20% of total leasing, slightly behind the technology sector's share of 22%. Combined, the two sectors accounted for almost 42% of total leasing across the top six cities, the report says.

“Occupiers continue to show interest in flex spaces as they look for ways to control costs while providing convenient workspaces for their employees. Large technology companies are also turning to flex spaces due to their benefits, including flexible lease terms, lower capital expenditures, and modern workplace designs,” the report said.

Tech companies have decreased conventional leasing also due to concerns about a potential recession and layoffs in the sector, Colliers said.

A cautious approach

During Q1 2023, vacancy levels in three out of the top six cities in India remained steady compared to Q4 2022, suggesting a cautious and strategic approach across markets. Compared to the previous year, vacancy rates decreased by 210 basis points due to a significant increase in demand.

Hyderabad, Delhi NCR, and Pune saw a slight increase in vacancy levels due to a significant increase in supply in 2022.

In Mumbai, vacancy levels dropped to 15.3% by the end of 2022. In Q1 2023, vacancy rates remained stable due to limited availability of new supply and consistent demand.

Says Peush Jain, MD- office services India, Colliers, “At a time when occupiers are delaying decision making on leasing office spaces amidst continued economic uncertainties, the office market witnesses signs of stability in Q1 2023 with the vacancy levels remaining intact at 16.4% compared to the previous quarter.”

City	Vacancy Q4 2022	Vacancy Q1 2023
Bengaluru	12.70%	12.80%
Chennai	19.90%	16.6%*
Delhi NCR	19.60%	20.00%
Hyderabad	18.60%	19.90%
Mumbai	15.30%	15.30%
Pune	16.20%	16.70%

Source: Colliers

Market expected to pick up in the later part of the year

In most markets, new office supply matched demand, leading to stable vacancy rates. Colliers says that the market is expected to pick up in the latter half of the year due to strong growth fundamentals.

“Going ahead, we expect demand and supply to move in unison, keeping the vacancy and rental levels range-bound. The latter part of 2023 may see signs of strong recovery provided the recessionary concerns lessen in the beginning of the second half of 2023,” says Jain.

Despite a strong pipeline of new office supply, developers will proceed with caution and closely monitor demand to avoid speculative supply.