Comments
Office spaces are shrinking globally as the volume of deals with smaller floor plates, in terms of leasable area, is increasing, a sign of stress in the office sector in the US and Europe that has spilled over into India as well.
In a blog post last week, Niel Harmse, Vice President MSCI Research, said that the global deal volume for offices has declined to the lowest level since the 2008 global financial crisis. A significant trend that has accelerated since the onset of the pandemic is the lean towards buildings with smaller floor plates.
“Evolving demand for offices can also be seen in the higher proportion of deal volume attributed to assets with smaller floor plates, or the leasable area per floor of a building,” Niel said.
In India, data from Colliers for the first six months of FY24 shows that the share of transactions for offices of floor area 10,000 to 50,000 square feet has moved up two percentage points from last year, while the share of deals for offices of over 1 lakh square feet saw a percentage point dip.
“This rise attributes to increased space take-up from diverse sectors, such as e-commerce and healthcare, apart from the core sectors such as engineering and manufacturing, BFSI and consulting,” said Vimal Nadar, Senior Director, and Head of Research at Colliers India
US, Europe office stress
In the US, nearly a third of all deals in 2023 so far are in the 10,000-20,000 square feet floor plate while the share of deals for over 50,000 square feet floor plate is just under 10 per cent, according to MSCI Research. This is a trend that was seen after the financial crisis and further aggravated in the pandemic.
Harmse said that across the UK and Europe’s 20 largest metropolitan office markets, the percentage of office transactions with floor plates smaller than 10,000 square feet increased to 56 per cent in 2023 from 43 per cent in 2019.
He pointed out that in the wake of the pandemic, the widespread adoption of hybrid work is continuing to “drive occupiers to rethink their needs for physical real estate.” According to the MSCI US Quarterly Property Index for Q2 2023, the office sector has been the worst-performing segment for eight consecutive quarters while the index’s office vacancy rate rose to a new high of 16.2 per cent.
India office trends
Though the office sector in India is in a relatively better position compared to the developed markets, with Grade A office stock dependent to a large extent on multinational occupiers from the US and Europe and large Indian technology companies, the depression in those markets is having a spillover effect on office deals.
According to the data shared by Colliers with businessline, the number of deals in the 10,000 to 50,000 square feet segment in the first six months of 2023 rose over 8 per cent year-on-year to 422 across the top six cities, and the total area leased increased to 10.7 million square feet from 9.7 million square feet in the same year-ago period.
The number of deals of over 1 lakh square feet rose nearly 15 per cent year-on-year, but the area leased was static at 12.2 million square feet.
“Technology sector, which remained the top occupier of office space over the years, contributing significantly to the large-sized deals, has seen some moderation in demand leading to a marginal decrease in large-sized deals during Jan-Sep 2023 on a year-on-year basis,” said Nadar.
He pointed out that in 2023 so far, the technology sector accounted for about 27 per cent of the total leasing through large deals, compared to 40 per cent in the year-ago period.
CBRE also pointed out that in the September quarter, it was the small-sized transactions, of offices less than 10,000 square feet and medium-sized transactions (10,000-50,000 square feet) that had driven office absorption, with a share of 86 per cent of total leasing.
“A combination of economic factors, business preferences, and the evolving nature of work in the diverse business landscape of India drives the demand for small-sized office transactions,” said Anshuman Magazine, Chairman, CEO of India, South-East Asia, Middle East & Africa, CBRE.
He observed that firms may have several reasons to look for small-size space, varying from prioritizing location over size in prime locations to hybrid working trends or uncertainty in space requirements due to business uncertainties.
“Operating satellite offices in strategic locations to cater to specific clients or for regional operations, preferably smaller in size, is also a reason for small office transactions,” he added.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.