Gross absorption of office space touches 14.6 mn sq ft in Apr-Jun 2023: Colliers

The April to June quarter of 2023 recorded 14.6 million square feet (msf) of gross absorption of office space across the top six cities, rising by 2 percent from 14.3 msf last year, indicating a rebound after a cautious first quarter. Bengaluru and Chennai led overall leasing growth at 23 percent each, a new report has said.

The technology and engineering and manufacturing sectors together dominated office leasing activity in the second quarter of calendar 2023, accounting for 47 percent of the total leasing during the quarter. Leasing by these firms witnessed a threefold rise on-year as occupiers continued to take up larger spaces across top markets. Bengaluru and Chennai were the most preferred locations for engineering and manufacturing companies for their office expansions, the report from real estate consultancy Colliers said.

Leasing of flex spaces surged 58 percent in the quarter over the previous year, as occupiers continued to incorporate renting of mixed-use spaces as a long-term strategy, the report said.

Flex or flexible space is a type of real estate that provides businesses with adaptable office space on a month-to-month or an annual basis. It refers to physical space that is shared by individuals or large organisations. It allows tenants to choose from large office formats or a few seats with shared spaces such as meeting rooms, etc. It offers tenants the flexibility to scale up and scale down seating requirements without the liability of capital investment in fitting out own office spaces.

The six major office markets included Bengaluru, Delhi-NCR, Mumbai, Chennai, Hyderabad and Pune.

Chennai saw heightened leasing activity during the quarter and accounted for about 23 percent of the total deals across the country, on a par with Bengaluru. This surge can be attributed primarily to the growing demand from technology and engineering and manufacturing occupiers. The city is also seeing rising interest from flex operators, who are expanding their market coverage across cities. Share of flex space in total leasing of the city surged to 19 percent in the quarter, from a mere 7 percent in the first three months of 2022, the report said.

Office leasing in the Tamil Nadu capital tripled to 3.3 msf from 1.1 msf, even as new supply jumped to 2.4 msf from 1 msf in the same period. The average office rent in Chennai grew 2 percent to Rs 75.10 per square foot from Rs 73.40 per square foot a month, the report said

Office space leasing in Bengaluru fell 22 percent to 3.4 msf in April-June from 4.4 msf in the year-ago period. However, new supply more than doubled to 3.8 msf from 1.6 msf. Rents rose 1 percent to Rs 91.90 per square foot a month on average, from Rs 90.60 in the year-ago period.

In Hyderabad, office leasing fell 22 percent to 1.5 msf from 1.9 msf, while new supply fell 19 percent to 3 msf from 3.8 msf.

The gross office space leasing in Mumbai was down 41 percent to 1.6 msf from 2.8 msf. New supply plunged 79 percent to 0.2 msf from 1 msf.

Office leasing in Delhi-NCR was up 11 percent to 3.1 msf from 2.8 msf. New supply rose 43 percent to 2.1 msf from 1.4 msf. Monthly rent in Delhi-NCR appreciated by 2 percent to Rs 94.20 per square foot from Rs 92.40 per square foot.

As far as average office rentals are concerned, they remained stable during April-June at Rs 95 per square foot across six major cities, the report said.

“Engineering, manufacturing, BFSI (banking, financial services and insurance) and flex spaces have seen a strong rise in leasing, at 71 percent rise year-on-year in Q2 2023. This signals optimism along with growth in domestic consumption and investment, translating into office space demand. Flex spaces continue to gain more ground, as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is starting on a promising note with resurgence in demand across geographies.” said Peush Jain, managing director, office services, India, Colliers.