India office market in 2023 culminated with 58.2 million sqft of gross absorption across the top 6 cities, said a report by Colliers India. The last quarter of the year witnessed the highest-ever demand for office spaces in India, with all the three southern cities of Bengaluru, Chennai and Hyderabad registering best performance since the Covid-19 pandemic, it added. While Bengaluru and Delhi NCR drove leasing activity during 2023, accounting for about half of the total demand of office space in India, Chennai made it to the top three list for the first time. Chennai breached all earlier highs with more than 2x leasing activity in 2023 as compared to 2022 and recorded 10.5 mn sqft of gross absorption.

Sectoral contributions in office leasing

Demand from Flex operators remained unabated with 8.7 million sqft flex spaces uptake in 2023 which was 24 per cent higher as compared to 2022. Flex penetration in the Indian office market is expected to rise further in 2024, as developers are likely to adopt core plus flex strategy for decision making, it stated.

“The Indian office market not only navigated initial uncertainties but exceeded expectations and emerged successfully, recording an impressive 58 million sqft of gross absorption during 2023. The demand momentum, particularly as seen during the last quarter, will pave way for an optimistic start to 2024. Notwithstanding unforeseen events, a stable economic outlook augurs well for Indian commercial real estate and office markets will continue to witness steady interest from domestic as well as foreign-origin occupiers. Increased preference of a combination of core and flex real estate space, heightened activity in tier II markets and next-gen offices with more sustainable elements will be the key themes for office markets in 2024,” said Arpit Mehrotra, Managing Director, Head of Office services, Colliers India.

Resurgence in large deals, as GCCs continue to expand their India footprint

After a brief pause, occupier confidence in the business environment has translated into large office space requirements. At around 30 million sqft, large deals (>100,000 sqft) have shown an impressive 24 per cent annual growth in 2023. Global Capability Centres (GCCs) typically have large space requirements, and they too resumed their expansionary activities with greater fervor towards the second half of 2023, especially in the fourth quarter. Almost 40 per cent of the large deals in the top six cities have come from GCCs, particularly from technology and BFSI sectors.

“Large size of 100,000 sqft or more have contributed to almost 50 per cent of the overall office space demand in India. Interestingly, more than half of the large GCC deals achieved closure in the last quarter of 2023, indicating renewed momentum in GCC activity of the country. Large pool of talent, cost-effective rentals, adequate Grade A developments and favorable office market ecosystem will continue to uphold India’s vantage positioning from a capability centre perspective. Moreover, healthy demand from domestic firms across technology, BFSI, manufacturing, healthcare and flex spaces will result in equally strong demand of office spaces in 2024,” said Vimal Nadar, Senior Director and Head of Research, Colliers India.

Healthy supply infusion keep vacancy levels range bound while rentals firm up slightly

With 50.1 million sqft of new completions, fresh supply across the top six cities rose about 17 per cent YoY, indicating higher developer confidence for near-term space uptake. While Bengaluru accounted for 35 per cent of the new completions in 2023, Hyderabad followed closely with almost 30 per cent share at an India level. Given strong performance on both demand and supply side, vacancy levels remained range bound. Average rentals, meanwhile, increased by up to 5 per cent across most Indian cities.