India’s office market across the top seven cities (Mumbai, Delhi NCR, Bengaluru, Hyderabad, Chennai, Kolkata, and Pune) recorded a net absorption of 38.25 million sq ft in 2022, hitting a three-year high, according to a report by Jones Lang LaSalle (JLL) India, a real-estate consultancy firm.
Net absorption is the sum of square feet that became physically occupied minus the sum of square feet that became physically vacant during a specific period.
The report said that net absorption for calendar year 2022 has surpassed the five-year (2015-2019) pre-pandemic average by 3.1 percent as well, and it is second only to the 2019 net absorption figures for the past 10 years, showcasing the strong resilience of the Indian office market.
Also read: Real estate trends 2022: Office space absorption may touch 39 mn sq ft; housing sales 200,000 units
Absorption down quarter on quarter
Although net absorption in CY2022 has surpassed earlier records, on a quarter-on-quarter (QoQ) basis, it is down by 19 percent, at 7.99 million sq ft.
The report stated this to be early signs of sluggishness, driven by global headwinds that saw delayed decision-making and a cautious approach from occupiers, impacting deal closures in the last quarter of the year.
In Q4 of 2022, Delhi NCR led the way, with 23.7 percent share of net absorption, and Hyderabad and Chennai showing strong year-end momentum to power ahead of even Mumbai and Bengaluru.
The top three cities combined for a 60.9 percent share of net absorption in Q4 2022, driven by strong supply addition, backed by pre-commitments.
“The office market in India has made a strong recovery in 2022, with the year emerging as the strongest in terms of office market performance, post-COVID-19, and second only to 2019 over the last decade. Even with the evolving hybrid work ecosystem, we have seen a sharp rise in office occupancy levels. This has resulted in a strong demand pick-up with occupiers approaching their real-estate strategies with greater clarity and agility," said Rahul Arora, Head, Office Leasing Advisory India, and MD, Karnataka & Kerala, at JLL India.
Further, according to the report, Bengaluru retained its leadership position accounting for the highest net absorption for calendar year 2022, with Hyderabad close behind.
The full-year net absorption for all cities is higher than the 2021 numbers. As a result, the pan-India net absorption was 46.1 percent higher on a YoY basis, said the report.
"India’s momentum as an actively growing office market with new job creation, its established and growing credentials as a tech and innovation hub, companies’ expansion plans, and more firms looking at India from a talent perspective are all strong growth drivers for the office market to have put in such a performance for 2022," Arora added.
Also read: Bengaluru pips Pune in overall office space activity in H1 FY23: Report
Over 50 mn sq ft lined up
According to Dr Samantak Das, Chief Economist and Head of Research at JLL India said, "Over the next 12 months, around 53-58 million sq ft are lined up, with average pre-commitment levels of 14-17 percent.
For assets owned by institutional landlords, which are 30 percent of the supply pipeline, pre-commitment rates stand at 22-25 percent, signalling the flight to quality with healthy workspaces and ESG considerations being given significant weightage during space planning.
"Space requirements have shown a slight softening with active requirements declining by about 15 percent, as many real-estate plans have gone on hold or are put off indefinitely, given the evolving macroeconomic headwinds. We are likely to see some delayed decision-making as businesses look at macroeconomic signals before committing capital for new offices. Driven by segments like healthcare-life sciences, manufacturing/industrial segments, along with its leadership position in the global tech ecosystem, office demand is expected to be similar to 2022 with a marginal to slight upside," he said.
For calendar year 2022, tech leads, with a 27.6 percent share, followed by flex, with 18.5 percent and manufacturing/industrial segments with 13.9 percent share, respectively.
Also read: Startups to account for 30% of gross office leasing activity in 2022: Report
Gross leasing up 47.4% YoY
The report states that gross leasing activity for calendar year 2022, at 49.41 million sq ft, was 84 percent of the 2019 highs, signalling a robust post-COVID revival in market activity during the year.
According to the report, Mumbai, Bengaluru and Delhi NCR accounted for 23.5 percent, 19.6 percent, and 18.8 percent share, respectively, of gross leasing activity during Q4 of 2022.
Delhi NCR and Bengaluru are the two biggest office markets in terms of full-year 2022 gross leasing activity, followed by Mumbai. These three markets account for over two-thirds of occupier activity for calendar year 2022.
The report states that the early year (2022) market momentum slightly tapered off at the end of the year, slipping on global headwinds’ slope as occupiers slowed down decision-making and waited for headline trends to emerge from their corporate headquarters and global clients on overall business direction before moving ahead with their real-estate strategies.
The report states transaction activities by techs turned slightly sluggish and was visible in its reduced market share. Tech retained its top spot but saw its share slipping for the third quarter in a row to 25.3 percent, while flex saw its golden run continuing and recorded an 18.8 percent share of gross leasing activity.
The BFSI (banking, financial services and insurance) sector showed good momentum, backed by some large transactions in Mumbai during the quarter with its share of gross leasing, at 14 percent.
Further, flex seat leasing by enterprises in the form of managed or enterprise solutions recorded its strongest quarter yet, with ~38,140 seats taken up in Q4 of 2022.
The calendar year 2022 flex seat take-up hit an all-time high of 131,700+ seats, according to the report, crossing the pre-pandemic peak of 2019 by more than 2X. The annual flex seat take-up in 2022 alone has surpassed the combined total of the pre-COVID years of 2018 and 2019 as well as the past two years 2020 and 2021.
Robust supply hits a new high
The report also added that quarterly supply, at 14.83 million sq ft, was up by 23.8 percent QoQ. For full year 2022, new completions reached a historic high for the Indian office markets at 58.27 million sq ft.
Completions in Q4 of 2022 were headlined by Hyderabad and Bengaluru, which combined for a 60.5 percent share of the quarterly supply additions. Just around 23 percent of the new supply infusion was pre-committed, highlighting that occupier decision-making turned slightly bearish in the last 3-4 months.
A significant part of this came from new completions in Chennai, where 55 percent of the supply was pre-committed, and Mumbai, with a 28 percent pre-commitment rate. Hyderabad and Bengaluru saw similar pre-commitment rates of 21 percent each, while Delhi-NCR just had 13 percent pre-commitment levels.
Vacancy up
According to the report, the pan-India vacancy has risen to 16.6 percent, up 60 bps QoQ, with a stronger supply infusion, compared to expansion-driven occupier activity. Vacancy, going forward as well, is expected to remain sticky within the 16-17 percent range.
Future supply pipeline is strong, and while leasing momentum is slightly lagging, moderate to strong pre-commitments in the upcoming projects and expectations of leasing activity to pick up steam by H2 of 2023 will support net absorption and keep vacancies within range.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
