As business activities started bouncing back to normalcy in 2022, the office sector witnessed a significant recovery. Easing of Covid-19 restrictions, expansion by occupiers, a stepped-up return to the officeand pent-up demand from the last two years were the key contributors to the recovery. Real estate decision-making picked up a significant pace in 2022.

During the first 9 months of 2022, the office markets across the top six cities (Bengaluru, Chennai, Hyderabad, Mumbai, Delhi-NCR and Pune) have already witnessed 40.6 mn sq ft of leasing, a two-fold increase from the same period last year. Occupiers who had postponed their leasing decisions during 2020 and 2021 are more optimistic about leasing space for expansion during the year.

Bengaluru: Hotspot for office leasing during 2022

The southern markets – Bengaluru, Chennai, and Hyderabad – witnessed strong leasing during YTD 2022, accounting for 54% of the total absorption across the top six cities. Bengaluru has been the undisputed leader of office leasing in India for a while now and is expected to maintain the streak in 2022 as well. In terms of leasing during the first 9 months of 2022, Bengaluru accounted for around one-third of the total absorption, backed by robust demand from Tech and Flex players.

Similarly, Chennai and Hyderabad recorded a whooping1.5x jump in absorption clocking at 3.6 mn sq ft and 5.6 mn sq ft respectively during January-September 2022, in comparison to the same period in 2021. Hyderabad continues to attract large occupiers led by affordable rents and quality grade-A supply and quality infrastructure.

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In terms of supply, the first 9 months of 2022 saw greater supply in the market, with new completions rising 1.5x YoY to 32.8 mn sq ft. Moreover, there has been a surge in pre-leasing of under-construction properties across the top six cities, which are likely to be operational by year-end. The southern markets of Bengaluru, Chennai, and Hyderabad collectively comprised 62% of the overall share in new supply. With various infrastructure projects in multiple stages of completion and abundantland availability for future expansions, the southern cities remainpreferred markets for occupiers.

Bengaluru is witnessing an upsurge in supply with increased developer confidence to meet the rising demand from occupiers in the city. The technology sector continued to be the primary demand driver for office real estate in Bengaluru accounting for half of the total leasing during the first 9 months of 2022. Leasing by technology, consulting, BFSI, as well as flex spaces, has surpassed the leasing volume witnessed during the pandemic years (2020, 2021) as they rapidly expanded amid improving office sentiment. During the first 9 months of 2022, flex spaces which accounted fora 14% share in leasing,saw a 3-fold increasein leasing YoY. Occupiers are expected to incorporate more flex spaces while realigning and re-optimizing their portfolios.

Office leasing might continue the bull run in the final quarter of 2022

The year 2022 is most likely to emerge as the best year in terms of office space leasing, with gross absorption likely to cross 50 mn sq feet across the top six cities. The supply pipe line remains strong as high-quality grade A supply in prime locations would continue to draw high interest from occupiers. Moreover, continued leasing activity in the last quarter is likely to cause vacancy levels to marginally decrease across cities.

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Decision-making might see some delay in 2023 with a recession on the horizon

In 2023, business sentiments could dampen led by concerns arising from job cuts in global companies and startups. Lower hiring estimates and recessionary pressures may force companies to keep costs under control. The impact of the recession on global corporates leasing in India may slightly weigh on leasing activity towards the beginning of 2023. However, well-managed firms are likely to continue to look towards India as an attractive cost-effective option. Office leasing is expected to see some moderation in 2023, with total gross absorption projected to be around 35-38 mnsq ft.

Technology and sustainability: Switching gears from ‘good to have to ‘must have’

With rising awareness about wellness and sustainability in the workplace, occupiers are paying heed to enhancing indoor air quality and integrating touchless faucets to improve employee health and well-being. Similarly, occupiers are adopting advanced technology in the workspace to support hybrid working to improve employee productivity and efficiency. Overall, redesigning office spaces to meet evolving employee requirements and adopting distributed workspaces can be the key strategies for occupiers to increase the rate of return to work.

Post-pandemic, led by the global economic and health crisis, stakeholders have intensified their efforts to improve their approach towards sustainability issues. Developers, occupiers, and investors are edging towards sustainable office spaces as they firm up their ESG strategies. A shift towards sustainability can be seen as developers are increasingly opting for green certifications like LEED, GRIHA and WELL for their newer projects. Moreover, all the credible and listed developers are prioritizing sustainability by setting out specific short-term and long-term goals for their current and future projects.

Keeping an eagle’s eyecan help real estate stakeholders dodge recession

Looking at global disruptions, occupiers and investors are expected to step ahead with caution. The next few months will see continued reassessing of portfolios. The search for high-quality and inflation-proof assets will intensify. Despite the fear of recession looming over, economic indicators still hint at relatively strong growth and a positive outlook for India. Stakeholders will resort to a long-term approach and re-position themselves beyond the recession and inflation irregularities. With the pandemic no longer having a material impact on businesses, the evolving growth story of the sector is expected to remain intact, but with caution.

(By Arpit Mehrotra, Managing Director, Office Services, South India & Head of Flex | India, Colliers India)