Office space absorption across six major cities grew 130% year-on-year to 30.4 million sq.ft. in the first half of 2022. There has been a 76% increase in new supply infusion at 32.4 million sq. ft. Bengaluru, Delhi NCR and Pune contributed to 66% of leasing activity in the first half of 2022, according to real estate advisory firm Savills India.
The Savills India’s India Market Watch Office H1 2022 report said Bengaluru led with 10.7 million sq.ft. of leasing activity, registering a 110% increase from H1 2021. Pune was a surprise entry at the top, as the third position is usually a tussle between Mumbai and Hyderabad. Pune displayed the highest y-o-y growth backed by large-sized deals and heightened demand from IT-BPM and flexible workspace operators.
The city witnessed 3.7 million sq.ft. of Grade-A gross absorption during H1 of 2022, which was almost four times that registered during H1 of 2021, with employees returning to the workplace and business sentiments that led occupiers to gain confidence, the report said.
Flexible workspace operators replaced the IT-BPM segment and dominated the leasing activity accounting for almost half (47%) of the Grade-A gross absorption. The IT-BPM segment garnered a 27% share, followed by the engineering and manufacturing segment with a 20% share. Pune saw a supply of 4.5 million sq. ft. during H1 of 2022, which is almost six times that registered during H1 2021.
Mumbai recorded 3.3 million sq. ft. of Grade-A gross absorption during H1 2022, which is more than double that registered during H1 2021, the report said. Navi Mumbai attracted a majority (28%) of the overall demand mainly from occupiers in BFSI and technology segments as well as flexible workspace operators. This was followed by Thane (21%), central Mumbai (13%) and eastern suburbs (13%). Savills India forecasts Mumbai to record Grade-A gross absorption of around 6.5 million sq. ft. during 2022, which was 41% higher than in 2021. This is similar to the pre-pandemic absorption of 6.9 million sq. ft. in 2019.
Delhi-NCR witnessed gross absorption of 5.6 million sq. ft. in H1 2022, up by 194% from H1 of 2021. Gurugram and Noida witnessed the maximum leasing with Gurugram contributing to around 64% of the overall absorption while Noida’s share was 34% and Delhi’s share was at 2%.
“Most businesses took advantage of the available inventory to upgrade their real estate portfolios, which resulted in strong leasing activity across top six cities. Supply grew as well, making it an end users’ market. 2022 is expected to reach pre-pandemic levels as technology and IT-BPM sectors are once again driving demand for the office spaces.” said Arvind Nandan, managing director – research and consulting, Savills India.
Bengaluru recorded the highest supply infusion amongst the top 6 cities and had a share of 37% in the first half of 2022 while Delhi NCR saw a dip of 44% in new supply infusion.
The technology sector led the demand for office space with around 42%. The pharma and healthcare occupiers increased their space take-up by 2.8x when compared to H1 2021, while the share of engineering and manufacturing increased by 3.3x and the flexible workspace segment went up 4.8x times. Large deals of more than 100,000 sq. ft. accounted for 41% of overall transaction activity and 39% were mid-size deals.
With supply outpacing demand, overall vacancy levels increased to 19.2% and were likely to increase further due to the strong construction pipeline in Bengaluru, Chennai and Hyderabad. The total Grade A office market stock in the country stood at 676.9 million sq. ft.
In terms of rental values, Gurugram and Noida saw the highest y-o-y growth at 20% and 11% respectively.