Absorption in India’s office market touched a three-year high in calendar year 2022, and the net absorption across the top seven cities—Mumbai, Delhi-NCR, Bengaluru, Hyderabad, Chennai, Kolkata, and Pune — stood at 38.25 million square feet, over 46% higher on a year-on-year basis.
The net absorption has surpassed the five-year pre-pandemic average (2015-2019) by 3.1% as well and is second only to the 2019 net absorption numbers for the past 10 years, showcasing the strong resilience of the Indian office markets, according to findings by JLL India.
Bengaluru retained its leadership position, accounting for the highest net absorption for the calendar year 2022, with Hyderabad close behind in the second spot.
However, early signs of sluggishness driven by global headwinds led to delayed decision-making and a cautious approach from occupiers impacting deal closures in the last quarter of the year. Consequently, on a sequential basis there is decline of 19% in net absorption at 7.99 million sq.ft.
Despite the first half of 2022 recording an all-time-high demand, the performance in July-December prevented the office off-take from breaking all previous records, primarily due to the deceleration in October-December, said Savills India, the arm of London-based property consultants. Average vacancy level has increased marginally from 18.3% in 2021 to 18.9% in 2022 on account of portfolio reallocations. This has resulted in rentals remaining largely stable.
Nevertheless the outlook for 2023 looks promising, though space requirements have shown a slight softening with active requirements declining by about 15% as many real estate plans have gone on hold or put off indefinitely given the evolving macroeconomic headwinds. Over the next 12 months, around 53-58 million sq. ft. is lined up with average pre-commitment levels of 14-17%.
“For assets owned by institutional landlords which are 30% of the supply pipeline, pre-commitment rates stand at 22-25%, signalling the flight to quality with healthy workspaces and ESG considerations being given significant weightage during space planning,” said Samantak Das, chief economist and head of research and REIS, India, JLL.
The office demand in 2023 will be driven by segments such as flex working spaces, healthcare-life sciences, GCCs (global capability centres) and manufacturing/industrial along with technology. It is expected to be similar to 2022 with a marginal to slight upside.
According to Shishir Baijal, chairman and managing director, Knight Frank India, the domestic demand remains strong, while the global companies have continued their growth in India, albeit at a slower pace. “The next year should see a further growth in office space transaction as more corporations continue to recall their staff to office as well as continue to hire more. The Indian conglomerates are expected to continue their growth leading to greater demand for office space,” he said.
“While the need to remain vigilant is unquestioned, the policy ecosystem and industry actions will hopefully create the right path in 2023,” said Anurag Mathur, CEO, Savills India.