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January-March net office leasing in the top 7 Indian cities reached a 6-quarter low.

Net office absorption across India’s top seven cities has witnessed a decline touching a six-quarter low in the first quarter of 2023 owing to reduced expansion activity, delayed space plans, and a hybrid workplace strategy that is still evolving.

The share of leasing in the technology sector, the mainstay of the country’s office market, too has hit a six-quarter low due to slow hiring and global challenges impacting the overall numbers. Net absorption decreased 34% on-year and 4.5% sequentially to 7.63 million sq ft, showed data from JLL India.

The market, however, has shown resilience with the gross leasing activity across these cities recorded at 12.8 million sq ft during the quarter, indicating an improvement from the quarterly run rate of 2022. Despite the emerging headwinds, the gross leasing activity stood higher on a year-on-year basis by 23.2%. However, the absorption was down by 8.7% on a sequential basis.

“Despite a slight dip in overall leasing activity in the first quarter of 2023, it is premature to conclude that office markets are experiencing a sluggish period. In fact, this quarter saw the highest leasing activity compared to the same periods in 2021 and 2022,” Rahul Arora, Head – Office Leasing Advisory, India & MD, Karnataka & Kerala at JLL India.

According to him, the growth story driven by Global Capability Centers (GCC) in various sectors, such as BFSI, new tech, engineering research & development, along with segments like flexible workspaces, healthcare-life sciences, and manufacturing/industrial occupiers, is expected to propel office markets’ activity.

The companies were consolidating and relocating to save on real estate costs, while there were fewer pre-commitments in new completions during the quarter. This reflects the challenges faced by the corporate world amid global headwinds and an uncertain business environment.

“Although there has been a slowdown in the tech industry, we anticipate that the demand for office space will remain stable, reaching similar levels as in 2022, with an estimated range of 36-40 million sq ft. However, we will have a clearer picture of the direction of office demand after another quarter, said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

According to him, with the return to work gaining momentum, real estate planning will focus on talent mobility, healthy work environments, and the employee value proposition. Flexibility will be a key component of real estate portfolio management. The recent surge in Covid cases also needs to be monitored, as any disruptions to the return to work may delay real estate decision-making.

Delhi NCR remained the top city in terms of net absorption for the second quarter in a row, followed closely by Bengaluru. Pune saw a significant improvement in net absorption, jumping to third place with a 16.8% share, supported by healthy pre-commitments. There was also a big increase in Kolkata’s quarterly net absorption, which reached a five-quarter high.

Pan-India vacancy has risen marginally to 16.7%, up 10 basis points sequentially with new completions continuing to outpace the net absorption. Going forward, vacancy is expected to remain sticky within this range of 16-17%.

The future supply pipeline remains strong and while leasing momentum is showing a slight deceleration, a more prominent trend is yet to become visible. Moderate to strong pre-commitments in the upcoming projects and expectations of leasing activity to pick up steam by the second half of 2023 is expected to support the net absorption projection and keep vacancy within range.

Although the quarter saw a decrease in leasing, it is too early to conclude that the office market is sluggish as this quarter had the highest leasing activity compared to the same periods in 2021 and 2022.

However, space requirements have decreased by 15-20% due to delayed decision-making and global economic headwinds, which may continue to impact space decisions throughout the year.

Despite this, India’s position as a leader in the global tech ecosystem should enable real estate markets to weather the storm.

The growth of offshoring driven by GCCs in various segments is also likely to aid upcoming office market activity. JLL expects office demand to be close to 2022 levels in the range of 36-40 million sq ft, though better clarity will emerge by next quarter.

Around 53-58 million sq ft of new supply is expected to come online in the next 12 months, with higher pre-commitment rates of 22-25%, in institutionally owned assets, as against 14-17% in total, indicating emphasis on healthy workspaces and ESG considerations. Ends



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