The India office sector is expected to see 40–45 million sq ft of gross leasing across the top six markets in 2023 as a result of continued strong demand and a resilient economic outlook, according to Colliers.
The expected leasing exceeds what was forecast in March 2023. The year started with 10.1 million sq ft of gross absorption in the first quarter, followed by a relatively faster recovery in the second quarter with 14.6 million sq ft of leasing activity, a growth of around 50 per cent QoQ.
“While repo rates have probably entered a stable phase, GST collections, manufacturing and service indices, and equity markets in general have been reflecting undercurrents of accelerated momentum. The momentum is likely to continue in the second half of the year and ultimately result in better than anticipated office market performance in 2023,” said Peush Jain, Managing Director, Office Services, India, Colliers.
However, at the global level, the economic forecast for 2023 is modestly higher than predicted in April 2023, pulled by marginal improvements in the US, UK, and Europe. This gradual recovery is expected to revive external sectoral demand.
Sectoral gains
Amid the evolving dynamics of the office real estate market, it is evident that tech occupiers, primarily rooted in the US, EU, and UK, have a significant bearing on office space leasing in India.
Concurrently, a notable surge in demand has been observed among domestic occupiers, particularly those in the engineering and manufacturing sectors, during the first half of 2023. In fact, from 2021 onward, the demand from domestic occupiers has surged significantly compared to the demand from global occupiers.
During H1 2023, the technology sector led the office space demand at 24 per cent, followed by flexible space and the engineering and manufacturing sectors at 18 per cent and 17 per cent, respectively.
“Sectors such as technology and BFSI have seen over 50 per cent QoQ growth during Q2 2023, while demand from engineering and manufacturing has surged two-fold over the preceding quarter. The services and manufacturing PMIs also registered significant peaks in 2023, indicating healthy growth of these critical demand sectors going forward,” noted Vimal Nadar, Senior Director and Head of Research, Colliers India.
Hike in rentals
The optimism observed on the demand side is mirrored by a positive shift on the supply side.
H1 2023 saw 22 million sq ft of new supply across the top six cities, registering a 31 per cent rise during Q2 2023 compared to the first quarter.
Going forward, Colliers anticipates a growth of 10–20 per cent in supply in H2 2023 compared to H2 2022.
Furthermore, 2023 is expected to see robust supply aligned with the anticipated space uptake across major office markets, and vacancy levels will be rangebound, leading to a potential rental upside. While the overall office market is likely to see balanced growth towards the second half of the year, certain key micromarkets are likely to witness heightened activity.