India’s office market net absorption at 10.37 mn sq ft in Q3: JLL India

Hyderabad and Bengaluru take the top spot

Hyderabad and Bengaluru led the gross leasing activity with a combined share of 52.1 percent. However, Hyderabad saw its leasing activity increase by 3.1x q-o-q. Delhi NCR (18.6%) and Chennai (11.4%) were the next biggest contributors to the leasing activity in Q3, the report said.

Manufacturing biggest contributor to leasing activity

The impact of favourable manufacturing policies and India’s engineering talent continues to gather momentum as it rose to become the biggest contributor to Q3 leasing activity with an 18.6 percent share. Flex continues to occupy the second spot, accounting for a greater share at 18.4 percent. The sluggishness in technology on account of the third-party IT firms evaluating their current portfolio continued with the sector’s contribution to gross leasing moving down to the fourth spot for the first time in the past decade.

Flex gains momentum

With a sustained demand for flexible and managed enterprise services, around 39,600 seats were leased by flex space occupiers in Q3 2023. JLL India research finds that on a YTD basis this year flex space is already at 80 percent of the total seats leased in 2022. Bengaluru and Delhi NCR accounted for more than 50 percent of the flex space seats leased by occupiers in the third quarter of 2023.

The third quarter of 2023 recorded 14.44 mn sq.ft of new completions, a 37.7 percent q-o-q increase. Bengaluru, Hyderabad and Chennai – the three tech gateway cities led the new completions with a combined share of 71.6 percent in Q3. A significant part of the pre-commitments during the quarter came from new completions in Pune (46% of the supply was pre-committed), followed by Mumbai at 42 percent.

Office vacancy increases by 16.8 percent

With new completions surpassing net absorption, the Pan-India office vacancy has increased marginally by 20 bps to 16.8 percent. JLL India estimates that while net absorption is expected to remain strong, office vacancy is likely to remain sticky within the 16-18 percent range. Moreover, quality and superior-grade projects will continue to find favour from occupiers and hence will see much better occupancy levels.

“India’s office market performance in Q3 is a testament to the strong fundamentals of demand and the complete absence of any lasting effects of the global headwinds, except delayed decision-making. This strong leasing momentum is driven by India’s tech ecosystem which is seeing strong offshoring and R&D work across multiple sectors. GCCs accounted for a 44 percent occupier share in Q3 in terms of operations. This multi-year trend is expected to keep the Indian office markets among the most growth-oriented globally,” said Rahul Arora, Head Office Leasing Advisory, JLL India.

“In Q3 2023 India’s net office absorption recorded its strongest quarter in an 18-month period. While consolidation still dominates the office net absorption, prior pre-commitments were honoured and new space acquisitions remained healthy during the quarter. With deal closures on track we are likely to see the net absorption numbers meet the forecasts of 36-39 mn sq ft in 2023,” said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.