Gross office leasing is expected to close at 40-45 million sq ft across the top six markets in 2023, according to Colliers’ latest report on the India office market, titled 'Changing winds'.
The six cities are Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune. Gross absorption does not include lease renewals, pre-commitments and deals where only a letter of Intent has been signed.
Bengaluru is expected to close at 12-14 million sq ft, Delhi-NCR at 9-11 million sq ft, Chennai at 7-9 million sq ft and Hyderabad, Pune and Mumbai at 4-6 million sq ft, the report showed.
During H1 2023, the technology sector led office space demand with a 24 percent share, followed by the flex space and engineering and manufacturing sectors at 18 percent and 17 percent, respectively.
“Sectors such as technology and BFSI have seen over 50 percent QoQ growth during Q2 2023, while demand from engineering and manufacturing has surged two-fold over the preceding quarter,” said Vimal Nadar, Senior Director and Head of Research, Colliers India. “The services and manufacturing PMIs also registered significant peaks in 2023, indicating healthy growth for these critical demand sectors going forward. As the occupier confidence improves further, leasing momentum across pivotal sectors is likely to continue in the second half of the year.”
Domestic office demand is holding up well, supported by a resilient economic outlook in spite of the drag from weak external demand. At the global level, the economic forecast for 2023 is modestly higher than predicted in April 2023, on account of marginal improvements in the US, the UK and Europe, the report showed.
The year started on a cautious note registering 10.1 million sq ft of gross absorption in the first quarter, and then saw a relatively faster recovery in the second quarter, which registered 14.6 million sq ft of leasing activity, or growth of around 50 percent QoQ. In fact, improvement in business sentiments across varied demand segments and a visible uptick in the domestic economy translated into this growth in leasing activity, it showed.
Positive signals
The International Monetary Fund has made upward revisions in its 2023 GDP forecasts for most prominent economies during July 2023 from its April estimates. With India, the US and Europe and the UK being major sources of business, a positive change in their economic outlook is likely to have a perceptible positive impact on India’s office market outlook for 2023 and beyond, the report noted.
“Macro-economic indicators have been displaying consistent positive signals. Certain parameters have become more emphatic in recent months. While repo rates have probably entered a stable phase, GST collections, manufacturing and service indices and equity markets in general have been reflecting strong undercurrents of accelerated momentum,” said Peush Jain, Managing Director, Office services, India, Colliers. “The momentum is likely to continue in the second half of the year and ultimately result in a better-than-anticipated office market performance in 2023. Q2 2023 has already set the tone for a stronger 2023, and the year is expected to witness 40-45 million sq ft of gross leasing across the top six cities.”
Increase in occupancy likely to push rentals up
The optimism observed on the demand side is mirrored by a palpable positive shift on the supply side. H1 2023 saw 22 million sq ft of new supply across top six cities, registering a 31 percent rise during Q2 2023 compared to the first quarter. Colliers anticipates a growth of 10-20 percent in supply in H2 2023 compared to H2 2022.
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