Office sector leasing records a 66% rise in Jan-Sept 2022 | The Financial Express

Office sector leasing records a 66% rise in Jan-Sept 2022

Bangalore, Delhi-NCR and Chennai led the space absorption, together accounting for 62% of the total transaction activity in 9M 2022.

Office sector leasing records a 66% rise in Jan-Sept 2022
The cumulative share of flexible space operators and BFSI firms grew from 22% in Q2 to 43% in Q3 2022.

The office sector in India witnessed gross absorption of 42.1 million square feet during 9M 2022, registering a growth of 66% (Y-o-Y). Supply grew by 4% to 35.6 mn sq ft (Y-o-Y), according to a CBRE office report.

The report, titled ‘CBRE India Office Figures Q3 2022’, stated that Bangalore, Delhi-NCR and Chennai led the space absorption, together accounting for 62% of the total transaction activity in 9M 2022.

On a quarterly basis, technology corporates continued to drive leasing with a share of 24%, followed by flexible space operators (23%), BFSI players (20%), engineering & manufacturing companies (13%), research, consulting & analytics (5%) and life sciences (3%) firms. The cumulative share of flexible space operators and BFSI firms grew from 22% in Q2 to 43% in Q3 2022. The non-SEZ segment continued to dominate development completions during Q3 2022, as its share rose to 93% from 62% in the previous quarter.

The report points out that small (less than 10,000 sq. ft.) to medium-sized (10,000 – 50,000 sq. ft.) transactions drove leasing activity with a share of 85%, which was largely stable on a Q-o-Q basis. The share of large-sized deals (more than 100,000 sq. ft.) increased marginally to 7% from 6% in Q2 2022. Bangalore followed by Mumbai, Delhi-NCR, and Hyderabad dominated large-sized deal closures during Q3 2022, while a few such deals were also reported in Pune, Chennai, and Ahmedabad.

With sustained recovery in leasing, moderating vacancy levels and persistent demand for investment-grade assets, the rental recovery continued across cities as multiple micro-markets across Delhi-NCR, Mumbai, Chennai, Pune and NBD Manyata in Bangalore witnessed a rental growth of 1-6% on a quarterly basis.


Commenting on the same, Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said, “Compared to 9M 2021, the office sector witnessed a phenomenal recovery in leasing activity in 9M 2022 with the easing of COVID-19 restrictions, a gradual acceleration of return to office (RTO), expansion by occupiers and the release of post-pandemic pent-up demand.”

“The improvement in occupiers’ sentiments was reflected in a pick-up in tenant enquiries and tour requests – in September 2022, the APAC leasing market sentiment index for India continued to be the highest amongst major APAC markets. Though growth in hiring and technology spending is expected to moderate in the short to medium term after witnessing an increase post the pandemic, long-term fundamentals are expected to be resilient,” he added.

Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India, said, “The technology sector would continue to drive leasing activity during the remaining period of 2022. Space take-up by sectors such as BFSI, flexible spaces, engineering & manufacturing, and life sciences is also anticipated to grow on an annual basis. We also expect the supply pipeline to remain strong and rental values to remain range-bound or witness some growth towards the close of 2022.”’

Outlook and other observations

Cautious expansion by occupiers to continue in 2022: As inflation persists across most major economies, aggressive monetary tightening by central banks worldwide is expected to continue; therefore, a mild economic downturn in several economies is anticipated in the times to come. The impact of this economic downturn on global corporates’ leasing in India is yet to be determined – as for some these factors may slightly weigh on leasing activity towards the end of the year or in 2023, while for others India may continue to remain an attractive, cost-effective option.

Supply pipeline to remain strong: The supply pipeline remains strong as high-quality, investment-grade supply by leading developers and institutional owners in prime locations would continue to draw flight-to-quality space take-up. Bangalore, Hyderabad and Delhi-NCR are anticipated to continue to dominate supply in the coming quarters. Non-SEZ buildings would drive development completions, while the share of SEZ supply is likely to decline going forward. Moreover, a strong leasing performance in 2022 is likely to cause vacancy rates to dip marginally or remain range-bound across cities by the end of the year.

RTO to pick up amidst hybrid working arrangements: With pandemic restrictions completely lifted across cities, RTO is likely to continue to pick up as varying occupancies are currently observed across offices. Hybrid working would also enable occupiers to strengthen portfolio agility and shield themselves from economic fluctuations.

Rising fit-out and construction costs: Inflationary pressures caused by demand-supply imbalances and supply chain disruptions post COVID-19 led to an escalation in raw material and labor costs this year – leading to increase in new fit-out, construction and operating costs. To mitigate these challenges, occupiers may also adopt strategies such as re-evaluating their CapEx plans with respect to fit-out and other capital-intensive programmes; develop budgets in advance to account for RTO and cost inflation; consider ownership as a hedge against inflation; attract and retain facilities management staff and vendors; reduce energy costs; automate basic manual tasks through smart building technologies and proactively manage supply chain risks.

Technology, wellness, and sustainability to be high on occupiers’ agenda: Occupancy sensors to track space utilization and enhanced video conferencing to optimize the meeting experience are some of the tools that the occupiers are likely to adopt to ensure the smooth functioning of hybrid working models. Also, with the rising awareness about wellness and sustainability in the workplace, several occupiers are considering initiatives such as enhancing indoor air quality, integrating touchless technologies, fitness facilities, etc. to improve employee health & well-being.

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First published on: 13-10-2022 at 13:44 IST