Office leasing at 4-year high in 2023

After reaching a peak in 2019, office space leasing in India, an indicator of the white-collar job market, witnessed a gross absorption of 61.6 mn. sq. ft. during calendar year 2023 across 9 cities. The sector registered a growth of 7% year on year (Y-o-Y), marking a 4-year high leasing activity from 65 mn. sq. ft in 2019, according to a report by CBRE South Asia.

As per the report titled ‘CBRE India Office Figures Q4 2023’, development completions increased by about 13% Y-o-Y to reach 56.7 million sq. ft., an all-time high during 2023. Developers continued to exhibit their efforts towards sustainability, with nearly half of the newly completed developments during 2023 being green-certified (LEED or IGBC).

Anshuman Magazine, chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, opines that in 2023, the global economy, while grappling with monetary tightening and geopolitical challenges, fared better than expected. “Most major economies managed to avoid a recession, while the Indian economy continued demonstrating resilience in the year gone by. The Indian economy is anticipated to exhibit similar resilience in 2024 as well, led by strong domestic growth and sustained capital expenditure,” he says.

The office sector also performed better than expected, with many occupiers finalising deals in the latter half of the year. “Driven by steady momentum in enquiries, this demand is likely to remain largely stable during H1 2024. However, we expect demand to pick up momentum during H2 2024, led by clearer visibility of the global macroeconomic situation and an uptick in the global information technology (IT) services sector,” he says.

Bangalore, Hyderabad, and Chennai emerged as the leaders in this segment accounting for nearly 57% of the yearly leasing activity as BFSI firms drove leasing with a share of (22%) on an annual basis, followed by technology companies (21%), engineering & manufacturing companies (15%), and flexible space operators (14%).

The report highlights that small- (less than 10,000 sq. ft.) to medium-sized (10,000 –50,000 sq. ft.) transactions dominated office space take-up in 2023 with a share of 84%. The share of large-sized deals (over 100,000 square feet) rose slightly from 6% in 2022 to 7% in 2023. In 2023, Bangalore and Hyderabad led the way in large-sized deal closures with Chennai and Delhi-NCR following closely behind. A small number of these deals were also recorded in Pune and Mumbai.

Moreover, October-December’23 period recorded the highest-ever quarterly office leasing at 19.0 mn. sq. ft. driven by BFSI players and technology corporates which accounted for a share of 20% each, followed by engineering and manufacturing companies (16%), flexible space operators (12%), research, consulting & analytics firms (5%) and media & marketing firms (5%).

Notably, leasing during the quarter (Oct-Dec’23) increased by 16% Q-o-Q and 20% Y-o-Y. Bangalore, Hyderabad and Chennai registered nearly 60% of the quarterly leasing activity. “Within the Indian BFSI firms, the space take up was led by commercial banks and insurance firms that increased their appetite for office space as they undertook expansionary activities during the year,” says the report.

As per the report, new completions increased by 3% Y-o-Y to touch 15.6 million sq. ft. Hyderabad, Bangalore, and Delhi-NCR dominated new completions in Q4 2023 (Oct-Dec’23) with a combined share of 56%.

“Global firms would also continue to finalise their leasing decisions as they aim to set up or expand their footprint in the country. The office sector is likely to witness expansion by domestic firms from sectors such as banking, financial services, and insurance (BFSI) and engineering and manufacturing, while also seeing growth from other sectors such as life sciences and flexible space operators,” shares Ram Chandnani, managing director, Advisory & Transactions Services, CBRE India.