India’s southern cities dominate office demand in third quarter - GulfToday

India’s southern cities dominate office demand in third quarter


Bengaluru and Delhi NCR led the demand accounting for about half of the total demand of office space in India. File/Reuters

V Nagarajan

India’s office space absorption of 38 million sqft across top six cities during Q3 has signalled sturdy momentum despite ongoing global volatility. South Indian cities contributed almost 60% of the 38 million sqft office demand, according to a survey by Colliers.  Bengaluru and Delhi NCR led the demand accounting for about half of the total demand of office space in India.

The third quarter alone witnessed 13.2 million sq ft of leasing activity across the top six cities, slightly higher than the average 12.6 million sq ft quarterly demand since 2022.

Diversified demand: This year has been characterised by demand diversification. Although technology sector continues to drive the demand with a 25% share in YTD leasing, demand is now more broad-based spanning across sectors. The shares of flex spaces, engineering and manufacturing and BFSI sectors have seen significant sectoral gains by up to 6 percentage points each.  Flex spaces, especially, continue to perform well in 2023, as occupiers continued to prefer dynamic working arrangements for their portfolios. Overall, Bengaluru and Delhi NCR were the most preferred locations for flex players for their expansion.

“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. It would be interesting to see if 2023 could breach the historic high leasing activity of 2022.” said Peush Jain, Managing Director, Office services, India, Colliers.

“Driven by tech-based occupiers, the southern office markets of Bengaluru, Hyderabad and Chennai continue to witness heightened leasing activity. The three cities accounted for bulk of the demand, with about 57% share in the first three quarters of 2023. While Chennai’s Q3 demand rationalised, Hyderabad witnessed a strong 64% QoQ growth in gross leasing. Although, Bengaluru will continue to dominate India leasing activity in 2023, Chennai and Hyderabad are likely to see greater demand acceleration in the last quarter of the year.” says Arpit Mehrotra, Managing Director, Office services, South & Head of Flex, Colliers India.

While foreign origin companies have been driving the office space demand pre-pandemic, domestic occupiers have become active influencers in India’s office market 2022 onwards.  Despite the global economic volatility, domestic occupiers accounted for almost half of the office space take-up in 2023.  

Vacancy levels: During YTD 2023, new supply across the top six cities dipped 1% YoY. Around 33 million sq ft. of developments were completed in first three quarters of 2023.  Hyderabad witnessed significant new completions, contributing to 37% of the total new supply, closely followed by Bengaluru with 33% share. The first three quarters of 2023 has seen an average of 10.9 million sq ft of new deliveries, at par with the 10.7 million sq ft quarterly average of 2022. Led by nearly steady demand and supply influx, overall vacancy and rentals remained rangebound.

Despite externalities, fundamentals of India office market remained strong, and 2023 activity has been at par with 2022. While there is a healthy supply pipeline for the next few years, developers have been cautious of infusing supply in tandem with market demand dynamics. Vacancy levels since 2022 have been in the range of 15-20% across most cities, signaling stability in occupancy levels. Return to office mandates, despite increased preference for hybrid working augurs well for the near-term office space demand. Consequentially, rentals are likely to remain firm across key micro markets.” said Vimal Nadar, Senior Director and Head of Research, Colliers India.

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