Gross office leasing in India’s top six markets is set to reach between 40-45 million square feet this year, according to a recent report by Colliers, titled ‘Changing winds’. These markets encompass Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune. Despite external demand challenges, the domestic office demand remains robust, supported by a resilient economic outlook.
Projections for individual cities indicate that Bengaluru is anticipated to reach 12-14 million sq ft, Delhi-NCR at 9-11 million sq ft, Chennai at 7-9 million sq ft, and Hyderabad, Pune, and Mumbai ranging between 4-6 million sq ft.
The technology sector has been a driving force in the demand for office spaces during H1 2023, constituting 24 percent of the market share. Following closely are the flex space and engineering/manufacturing sectors, accounting for 18 percent and 17 percent respectively. Vimal Nadar, Senior Director and Head of Research at Colliers India, noted that technology and BFSI sectors have displayed over 50 percent QoQ growth in Q2 2023. Additionally, demand from the engineering and manufacturing sector has doubled compared to the previous quarter. Nadar expects this momentum to continue into the second half of the year, as occupier confidence strengthens.
Despite the drag from weak external demand, the Indian economy remains resilient. Global economic forecasts for 2023 show a modest improvement from April estimates, particularly in the US, the UK, and Europe.
The year began cautiously, with 10.1 million sq ft of gross absorption in Q1. However, the second quarter saw faster recovery, reflecting a 50 percent QoQ growth with 14.6 million sq ft of leasing activity. This acceleration can be attributed to improved business sentiments and an upturn in the domestic economy.
Colliers’ report underscores the positive influence of macroeconomic indicators. Factors like stable repo rates, robust GST collections, manufacturing and service indices, and a buoyant equity market indicate an upward trajectory. Peush Jain, Managing Director of Office Services at Colliers India, anticipates this momentum to continue into the second half of the year, leading to a stronger office market performance in 2023. The report suggests that Q2 2023 has laid a solid foundation for the year, predicting gross leasing of 40-45 million sq ft across the top six cities.
Furthermore, the rise in occupancy rates is likely to push rental rates upward. The supply side mirrors the demand optimism, with H1 2023 witnessing 22 million sq ft of new supply across the top six cities, indicating a 31 percent increase in Q2 compared to the preceding quarter. Colliers projects a supply growth of 10-20 percent in H2 2023 compared to H2 2022. This growth trajectory aligns with the overall positive sentiment pervading the Indian office market.