Q4 propels record-high office leasing activity; at 58.2msf 2023 witnesses 16% YoY growth in demand

• Q4 2023records20.2mn sqft of gross absorption, highest ever quarterly leasing activity
• Bengaluru drives 2023 demand with more than one-fourth share ingross leasing, followed by Delhi NCR & Chennai at around one-fifth share
• Flex space leasing continues to grow, highest leasing in any year at 8.7mn sq ft,
• Large deals (>100,000 sq ft) accounted for 50% of 2023 demand; Space take-upby GCCsbounce back in Q4
• 50.1mn sq ft of Grade A supply infusion in 2023 reflects strong developer confidence
• Vacancyremained rangebound while rentals firmed slightly

 Gurgaon, India, 26 December 2023: Contrary to initial beliefs, 2023 India office market has culminated on a spectacular note with 58.2mn sq ft of gross absorption across the top 6 cities. The last quarter of the year witnessed the highest-ever demand for office spaces in India,withall the three southern cities of Bengaluru, Chennai and Hyderabadregistering best performance since the Covid-19 pandemic. While Bengaluru and Delhi NCRdroveleasing activity during 2023, accounting for about half of the total demand of office space in India, Chennai made it to the top three list for the first time. Furthermore, with more than 2x leasing activity in 2023 as compared to 2022, Chennai breached all earlier highs and recorded 10.5mn sq ft of gross absorption.

 Trends in Grade A gross absorption (in million sq feet)

 City 2023 2022 YoY change Share of Q4

in 2023 gross absorption

Bengaluru 15.6 16.2 -4.2% 35%
Delhi-NCR 11.6 10.8 7.0% 27%
Chennai 10.5 4.6 131.0% 40%
Hyderabad 8 6.5 22.7% 34%
Mumbai 7 7.1 -1.2% 38%
Pune 5.5 5.1 8.9% 36%
 Pan India 58.2 50.3 15.7% 35%

 

Demand (msf)

 
  Q4 2023 Q4 2022 YoY Change
Bengaluru 5.5 3.5 58%
Chennai 4.3 1 338%
Delhi NCR 3.1 1.9 61%
Hyderabad 2.7 1.7 57%
Mumbai 2.6 1.4 87%
Pune 2 1 100%
Pan India 20.2 10.5 92%

Top 5 deals- Q4 2023

Transaction

Quarter

Year City Occupier/Tenant Industry Area leased (sq.ft.) Building Name Micro market Location
Q4 2023 Chennai Bank of America BFSI 1,100,000 DLF Downtown OMR Zone 1 Taramani
Q4 2023 Bengaluru Philips Engineering & Manufacturing 655,681 Embassy Business Hub North Bellary Road
Q4 2023 Bengaluru Wells Fargo BFSI 650,000 Embassy Tech Village – 3B ORR ORR 1
Q4 2023 Bengaluru Qualcomm Engineering & Manufacturing 567,404 Bagmane Capital – Angkor East ORR ORR 1
Q4 2023 Chennai Citi Bank BFSI 503,525 DLF Cybercity MPR Manapakkam

Top 5 deals of 2023

Transaction

Quarter

Year City Occupier/Tenant Industry Area leased (sq.ft.) Micro market Location
Q4 2023 Chennai Bank of America BFSI 11,00,000 OMR Zone 1 Taramani
Q2 2023 Chennai Shell Engineering & Manufacturing 6,67,752 MPR Porur
Q4 2023 Bengaluru Philips Engineering & Manufacturing 6,55,681 North Bellary Road
Q4 2023 Bengaluru Wells Fargo BFSI 6,50,000

 Tech demand rationalizing amidst increasingly heterogeneous office space take-up

 The contribution of tech sector in office leasing has been steadily decreasing from around 50% in 2020 to 25% in 2023. While demand emancipating from techoccupiers rationalized, the overallleasing activity continued to diversify.The sectoral contributions from BFSI and Engineering and manufacturing sectors especially have almost doubled, increasing from 10-12% in 2020to around 16-20%in 2023. Interestingly, in 2023, leasing by Engineering and Manufacturing players (26% share) surpassed the demand emancipating from Technology firms (22% share) in the tech hub of Bengaluru.

 Demand from Flexoperators remained unabated; at 8.7mn sq ft flex spaces uptake in 2023 was 24% higher as compared to 2022.Flex penetration in the Indian office market is expected to rise further in 2024, as developers are likely to adopt core plus flex strategy for decision making.

 Demand Drivers 2023

Sector Area leased

(mnsq ft)

YoY change
 Technology 14.3 -15%
 BFSI 11.2 64%
 Engineering & Manufacturing 9.4 87%
 Flex Space 8.7 24%
 Consulting 4.5 -4%
 Healthcare & Pharma 2.4 47%
 Consumables 1.2 -56%
 E-commerce 1.0 196%
Logistics 0.5
 Others                                5.0 -3%
 Grand Total 58.2 16%

  “The Indian office market not only navigated initial uncertainties but exceeded expectations and emerged successfully, recording an impressive 58 mn sq ft of gross absorption during 2023.Thedemand momentum, particularly as seen during the last quarter, will pave way for an optimistic start to 2024. Notwithstanding unforeseen events, a stable economic outlook augurs well for Indian commercial real estate and office markets will continue to witness steady interest from domestic as well as foreign-origin occupiers.Increasedpreference ofa combination of core and flex real estate space,heightened activity in tier II markets and next-gen offices with more sustainable elements will be the key themes for office markets in 2024.”says Arpit Mehrotra, Managing Director, Head of Office services, Colliers India.

 Resurgence in large deals, as GCCs continue to expand their India footprint

After a brief pause, occupier confidence in business environment has translated into large office space requirements. At around 30mn sq ft., large deals (>100,000 sq ft)have shown an impressive 24% annual growth in2023. Global Capability Centres (GCCs) typically have large space requirements, and they too resumed their expansionary activities with greater fervor towards the second half of 2023, especially in the fourth quarter. Almost 40% of the large deals in the top six cities have come from GCCs, particularly from technology and BFSI sectors.

 “Large sized of 100,000 sq ft or more have contributed to almost 50% of the overall office space demand in India. Interestingly, more than half of the large GCC deals achieved closure in last quarter of 2023, indicating renewed momentum in GCC activity of the country. Large pool of talent, cost-effective rentals, adequateGrade A developments and favorable office market system will continue to uphold India’s vantage positioning from acapability centre perspective. Moreover, healthy demand from domestic firms across technology, BFSI, manufacturing, healthcare and flex spaces will result in equally strong demand of office spaces in 2024.”says Vimal Nadar, Senior Director and Head of Research, Colliers India.

 Healthy supply infusion keep vacancy levels rangebound while rentals firm upslightly
With 50.1 mn sq ft. of new completions, fresh supply across the top six cities rose about 17% YoY, indicating higher developer confidence for near-term space uptake.While Bengaluru accounted for 35% of the new completions in 2023, Hyderabad followed in closely with almost 30% share at an India level.Given strong performance on both demand and supply side, vacancy levels remained rangebound.Average rentals meanwhile increased by up to 5%across most Indian cities.

 Trends in Grade A new supply (in million sq feet)

City 2023 2022 YoY change Share of Q4

In 2024 Grade A supply

Vacancy (%) as on 2023 end
Bengaluru 17.5 10.8 62.90% 39% 17.50%
Hyderabad 14.5 11.4 28.00% 17% 22.70%
Chennai 6.9 4.6 49.60% 51% 16.30%
Delhi-NCR 5.8 7.9 -27.20% 42% 19.90%
Pune 4.3 6.5 -34.50% 46% 14.80%
Mumbai 1.1 1.8 -37.60% 23% 12.30%
Pan India 50.1 43 16.60% 35% 17.40%

Supply (msf)

Supply (msf)
Q4 2023 Q4 2022 YoY Change
6.9 2.7 156%
3.5 0.4 765%
2.4 1.5 64%
2.4 3.4 -30%
0.3 N.A.
2 2 0%
17.4 9.9 75%

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