Supported by strong leasing by manufacturing segment, net absorption of office properties in the third quarter of the current calendar year became the strongest in last six quarters, touching 10.37 million square feet in Q3, a study said.
Manufacturing sector led the leasing activity in Q3, while technology firms still remained slightly restrained, JLL India said in its Q3 report. The net absorption of office spaces during the quarter was higher in top seven cities, except Chennai and Kolkata. Hyderabad took the top spot with 26.1% share, followed by Bengaluru (22.9%) and Delhi-NCR (16.4%), it said.
On a YTD comparison, net absorption in 2023 is slightly lower by 13.9%, compared to January to September 2022, as firms deferred growth plans and looked at portfolio optimisation, given the global sluggishness, though they remain bullish on long-term plans for their real estate footprint in India,it added.. However, JLL said its forecast for the full year remains intact at the 36 – 39 million sq ft range.
“The impact of favourable manufacturing policies and India’s engineering talent continues to gather momentum as it rose to become the biggest contributor to Q3 leasing activity with an 18.6% share,” it said .
Flexible offices continue to occupy the second spot, accounting for a greater share at 18.4%. The sluggishness in technology on account of the third-party IT firms evaluating their current portfolio continued with the sector’s contribution to gross leasing moving down to the fourth spot for the first time in the past decade, it said
JLL said Q3 of 2023 recorded 14.44 million sq.ft of new completions, a 37.7% q-o-q increase. Bengaluru, Hyderabad and Chennai – the three tech gateway cities – led the new completions with a combined share of 71.6% in Q3. A significant part of the pre-commitments during the quarter came from new completions in Pune (46% of the supply was pre-committed), followed by Mumbai at 42%, it said.
With new completions surpassing net absorption, the Pan-India office vacancy has increased marginally by 20 bps to 16.8%. JLL India estimates that while net absorption is expected to remain strong, office vacancy is likely to remain sticky, within the 16-18% range.
Rahul Arora, head, office leasing advisory, JLL India, said, “India’s office market performance in Q3 is a testament to the strong fundamentals of demand and the complete absence of any lasting effects of the global headwinds,except delayed decision-making. This strong leasing momentum is driven by India’s tech ecosystem, which is seeing strong offshoring and R&D work across multiple sectors.”