Flex, hybrid, and green will lead the office sector themes in 2023: Report

In 2023, flex, hybrid, and green will be the dominant themes for the office sector, according to the Real Estate Outlook for 2023 by Colliers.

The report states that about 60 million square feet of additional green Grade A stock has received pre-certifications or is under discussion for green certification. This is expected to come in the office markets in Hyderabad, Pune, and Delhi NCR.

“We foresee some stability in the market by mid-year in the office markets. Hybrid working, flexibility, and greening real estate will be the key focus in the sector. On the investment front, interest in core assets will continue, but investors will continue to unlock value potential in alternate assets such as data centers. AIFs will see greater traction this year,” said Ramesh Nair, Chief Executive Officer, India and Managing Director, Market Development, Asia.

Demand for flex spaces to shoot up in 2023

In 2023, tech companies are expected to increase their space take up in flex spaces due to factors such as flexible lease terms and aid cost control. By the end of 2022, the office space leased in the country crossed 50 million sq ft, of which 14 per cent corresponded to leasing by flex players, the highest in any year.

Moreover, the focus on upgrading office buildings is also expected to be high, with around 120 mn sq feet of Grade A offices befitting refurbishment in the top six cities of the country.

“Within retrofitting, developers are expected to focus on improving building efficiency, design adequacy, and building sustainability facets. These enhancements are likely to provide long-term benefits and help assets remain competitive in the market, resulting in tenant retention and rental upside,” stated the report.

Office: Industrial and warehousing sector

The industrial and warehousing sector saw platform deals of more than $2 bn during 2022 to focus on developing new age warehouse structures equipped with AI and IoT management systems for seamless dispatch and order tracking.

“These funds would be deployed for developing best-in class and tech-enabled warehouses in the coming years,” said Vimal Nadar, Senior Director and Head of Research, Colliers, India.

Additionally, the growing need for Q-commerce is expected to increase the demand for micro-warehouses and dark stores, which in turn would lead to higher demand for hub warehouses.

Investments: AIFs to see greater traction for flexible funding in 2023

The flexibility offered by alternate investment funds (AIFs) for repayment, has encouraged developers to opt for AIFs.

Special situations credit is also expected to pick up in 2023, aiding the projects that are on hold due to liquidity constraints. Moreover, green financing is likely to drive major investment decisions as domestic and offshore investors seek quality Grade A projects that are ESG compliant, said the report.

“The city hubs planned to be built during 2023, as a part of the National Logistics Policy 2022 will create more demand, especially for 3PL companies. We expect that the DESH Bill, once enacted, will also have the potential to change the face of the industrial sector,” said Nadar.

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