Office leasing in India is expected to pick up in the second half of 2023 and end up with gross leasing of 35 to 38 million square feet (msf) of space in an optimistic scenario where current headwinds ease out by that time, a report by Colliers-FICCI said.

Global uncertainties, layoffs in the technology sector, a slowdown in decision-making for office space among multinational corporations, the emergence of hybrid working models, as well as the convenience offered by flex spaces, are all headwinds that are creating uncertainty in the office leasing sector.

Recession impact

The year 2022 ended with 50.3 million sq ft of office leasing, the highest in any year, but 2023 has started off on a depressing note with several developed economies battling high inflation, record interest rates, a financial crisis brewing in the global banking sector, and layoffs that have also affected employees in India.

“About 35 to 38 million sq ft of office leasing is expected in the top six cities of the country in an optimistic scenario during 2023, provided the recession impact is low,” the report said. In a pessimistic scenario, office absorption could be 30–33 million sq ft, with a prolonged impact of economic uncertainties that would delay demand recovery.

The office sector is expecting a slowdown in 2023 as global economies are battling job losses, high interest rates, and their attendant problems. In India, stubborn retail inflation is keeping the lid on consumer demand, while a 250 basis point hike in interest rates in less than a year has pushed up borrowing costs.

Buoyant demand

The Colliers-FICCI report said that leasing by flex operators, engineering and companies in the financial services sector would keep demand buoyant. “Time will tell whether the office market will surpass the recessionary concerns and set its ground in the latter part of 2023 or will the economic headwinds have a prolonged impact.”

Though the Covid pandemic has all but receded now, hybrid working has caught on and is here to stay. According to the report, about 63 percent of occupiers have embraced hybrid work models, and this is expected to go up further. “Post-pandemic, the nature of office space take-up is changing as occupiers are focusing on de-densification of spaces. Occupiers are transitioning towards hybrid work, optimizing office space, and making themselves more amenable to collaboration,” the report observed.

Hybrid model

“Hybrid working has been a game changer for the future of work. To accommodate employees’ changing needs, occupiers are likely to switch gears towards adoption of a hybrid model,” Vimal Nadar, Senior Director and Head of Research, Colliers India, was quoted in the report.

There is also the emergence of flexible workspace operators who cater to hybrid workplaces. In 2022, flex operators leased 7 million sq ft of Grade A office space, a three-fold rise from pre-pandemic levels. Flex operators are leasing and occupying more space as they see more demand, and they are offering flexibility in leasing terms and short-lease tenures, providing savings on capex for office occupiers.