Office absorption to touch a new high in 2022

Office absorption to touch a new high in 2022; Flex leasing well placed to surpass previous years: Collers

·       Flex space leasing to cross 7 mn sq ft, touch a new high

·       Bengaluru to be the market leader, likely to account for 33% of leasing in 2022

·       New supply expected to increase by about 25%-30% YoY in 2022

·       Demand is likely to see some moderation in 2023 with gross absorption anticipated to close at 35 – 38 mn sq ft

After 2 years of slow demand for commercial offices, the year 2022 is likely to close on a new historical high, with gross absorption likely to touch 50 mn sq feet. This is likely to represent a 52% rise in total leasing from last year. Occupiers have been optimistic about their future workplace needs, after a gap of two years, and were snapping up office space across the top Indian cities. Bengaluru is likely to account for about 33% of the gross absorption, followed by Delhi-NCR and Hyderabad.

Grade A gross absorption (msf)

“The year 2022 is likely to be a landmark year in commercial office real estate. Collaborating, brainstorming and creating a dynamic culture are the three pillars of any workplace post-pandemic. During 2023, slow decision-making could result in leasing activity of about 35-38 mn sq feet. In 2023, Bengaluru followed by Hyderabad expected to see most of the new supply across the top six cities, says, Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.

“Market fundamentals continue to remain strong and demand holding through 2022. At this time, real estate players should prioritize long-term stability and creating stronger portfolios, focusing on aspects such as ESG and zero-carbon strategy. The future of real estate will require some recalibration from traditional practices to sustain and grow in this constantly evolving market”, added Peush Jain, Managing Director, Office Services, Colliers India.

Upgradation of offices will be at the forefront and a recurring theme. Landlords and occupiers are looking to upgrade offices to modernize them and make offices more sustainable. Across the top six cities, office stock of about 118 million sq feet holds potential for upgradation, accounting for 19% of the total office stock.

While demand in Bengaluru, Delhi-NCR and Chennai has already surpassed the earlier high seen in 2019, Mumbai, Hyderabad, and Pune are also inching towards reaching historical levels by the end of the year. However, we see a slight dent in enquiries and demand in the near term amidst global economic headwinds. Provided the demand remains stable and consistent in the first half of 2023, rentals are likely to pick up from the second half of the year.

Flex operators are likely to lease 7 mn sq feet by the end of 2022, touching the highest ever in the country, after 2019. This represents a 2-fold increase from 2021 as flex space has seen immense demand from medium and large enterprises this year. Occupiers approaching their lease expiry are exploring flex spaces as their relocation option for the flexibility it offers them. As per a C-Suite Survey conducted by Colliers and Awfis, about 77% of the occupiers are planning to incorporate flexible workspaces in their portfolio.

“New supply is expected to increase by about 25%-30% on a YoY basis during 2022, at about 44 mn sq ft. However, in 2023, developers are likely to step ahead with caution led. Developers are likely to align new supply with the demand momentum. This will ensure the market equilibrium is not disturbed and vacancy levels remain rangebound.” says Vimal Nadar, Senior Director and Head of Research, Colliers India.

While the impact of global economic disruptions, rising commodity prices and recessionary concerns may slightly outweigh India’s growth prospects in a short term, India’s economy is well placed.  The real estate sector might see some opportunities led by the technology sector, as India will become the preferred destination for outsourcing. IT and Tech-enabled companies in India are experiencing a rise in outsourcing as global companies in the US continue to find cost-cutting solutions. However, the real estate sector is likely to resort to a wait-and-watch approach for the next few quarters.

Also Read: CDSL buys 2 Offices in Lower Parel for Rs 163.17 Cr