Domestic occupiers keep office space demand high in 2023

• The third quarter alone saw a leasing activity of 13.2 million square feet across these major cities.
  
• Despite the unpredictable global economic conditions, domestic occupiers contributed to nearly 50% of the total office space occupancy in 2023.
  
• Flex spaces, in particular, have continued to thrive in 2023, as occupiers prefer flexible working arrangements for their office portfolios.
  

During the first three quarters of 2023, there was a 38 million square feet of gross absorption in office space in the the top six cities. This figure closely matched the gross absorption during the same period in 2022, indicating a robust trend even in the face of ongoing global uncertainties, as per a report by Colliers, a diversified professional services and investment management firm.

The third quarter alone saw a leasing activity of 13.2 million square feet across these major cities, slightly surpassing the average quarterly demand of 12.6 million square feet observed since 2022.

Domestic occupiers drive office space demand

Before the pandemic, companies with foreign origins were the primary force behind the demand for office spaces. However, starting in 2022 and continuing into 2023, domestic occupiers have emerged as influential participants in India's office market. Despite the unpredictable global economic conditions, domestic occupiers contributed to nearly 50% of the total office space occupancy in 2023, says the report.

While both domestic and foreign technology companies took their time to make decisions regarding their real estate portfolios, domestic firms, particularly those engaged in engineering and manufacturing, BFSI, pharma and healthcare, and flexible office spaces, have become more active and have expanded their office space presence across India's top six cities.

Key growth drivers

The report reveals a trend of diversified demand in the office space market. While the technology continues to drive demand, contributing to 25% of year-to-date (YTD) leasing, there is now a broader spectrum of sectors driving this demand.

Flex spaces, engineering and manufacturing, and the BFSI (Banking, Financial Services, and Insurance) sectors have all seen substantial increases in their respective shares, each gaining up to 6 percentage points.

Flex spaces, in particular, have continued to thrive in 2023, as occupiers prefer flexible and adaptable working arrangements for their office portfolios.

“Contrary to earlier belief, India office demand for the first three quarters of 2023, has followed an overall trajectory almost similar to 2022. With strong domestic macro-economic indicators backing the demand of office space, the momentum is likely to continue in the last quarter of the year,” says Peush Jain, Managing Director, Office services, India, Colliers.

Maintaining status quo

In the first nine months of 2023 the introduction of new office space supply in the top six cities decreased by 1% compared to the previous year. Approximately 33 million square feet of new developments were completed during the first three quarters of 2023.

Throughout the first three quarters of 2023, there has been an average of 10.9 million square feet of new office space deliveries, which is in line with the quarterly average of 10.7 million square feet observed in 2022.

Thanks to a relatively stable demand and a consistent influx of new supply, the overall vacancy rates and rental prices have remained within a relatively stable range.

Trends in Grade A new supply (in million square feet)



Source: Colliers