Office Market Update: Q3 2022

Gross Leasing Volume (GLV) for Jan-September 2022 is higher by 88% and 13% over the same periods in 2021 and 2020, marking the first full 9 months which were relatively COVID-free and the numbers are indicative of the resilience of the Indian office markets. Delhi NCR and Bengaluru are the two biggest office markets in terms of Jan-Sep 2022 gross leasing activity followed by Mumbai. These three markets account for over two-thirds share of occupier activity in the first 9 months of the 2022 calendar year. On a sequential basis, GLV was down 25% as Mumbai and Delhi NCR led the gross leasing numbers for Q3 2022 accounting for 26% and 23% share, respectively.

The net absorption for the first nine months of 2022 (Jan-Sep 2022) is at a three-year high of 30.3 mn sq ft, backed by strong supply completions with healthy pre-commitments. On a q-o-q basis as well, net absorption for the July-Sep quarter was up by 11% and recorded at 9.86 mn sq ft. In fact, the Jan-Sep 2022 net absorption is also 90% of the corresponding number for 2019, the pre-COVID year which also recorded the highest-ever net absorption for the full year.

With the return to work in full flow and office occupancies rising, the continued momentum in net absorption is indicative of the office remaining central to occupier workplace strategies. The return to the workplace is still at varying speeds across different occupier categories but is directionally moving to a hybrid model including working from the core office, a flexible office and home. Occupier momentum in terms of leasing activity was on a more certain footing this year but the global headwinds around rising inflationary pressures and slowing growth forecasts are likely to make occupiers cautious. This may cause some delayed decision-making resulting in deferred leasing activity as the business takes stock of the evolving economic environment.

Key trends in office segment in Q3 2022

Net absorption is up 11% q-o-q; backed by strong pre-commitments in newly completed projects

The net absorption in Q3 was up by 11% on a q-o-q basis, mainly on the back of strong pre-commitments in projects completed during the quarter coupled with new transactions. Hyderabad led the way with a 31% share of net absorption, with Mumbai pushing Bengaluru to the third spot, followed by Delhi NCR. These four cities combined for an 83% share of net absorption in the quarter.

Quarterly supply at 11.97 mn sq ft; up by 8% q-o-q

New completions were recorded at 11.97 mn sq ft in Q3 2022, up by 8% q-o-q. New completions in the quarter were headlined by Hyderabad (30.5%) and Delhi NCR (29.7%) which combined for a 60% share of the quarterly supply additions. Almost 46% of the new supply infusion was precommitted in Q3 2022. Delhi NCR and Mumbai witnessed the maximum q-o-q growth in terms of new completions during the quarter.

Vacancy remained stable on a q-o-q basis

The overall Pan India vacancy remained at 16.0% at the end of Q3 2022. On a quarterly basis, barring Chennai and Delhi NCR all other cities witnessed a drop in vacancy levels as net absorption outpaced the new completions during the quarter. While the headline vacancy may look slightly higher, core office markets in the major cities continue to have tighter vacancies compared to the respective city’s overall numbers.

Tech remains the dominant occupier segment

The IT/ITeS segment continues to dominate with a 27% share of leasing activity, although down from its 33% share in the previous quarter. Aided by a strong return to office trend, the BFSI sector showed impressive gains with its share rising to 16% from 10% in the previous quarter, backed by some large transactions witnessed in Mumbai during the quarter. The Manufacturing and Telecom, Healthcare & Real Estate segments held shares of 14% and 16%, respectively.

Flex continues its growth momentum with a 14% share

Flex space operators continue to remain growth-oriented resulting in a share of 14% in quarterly leasing activity, even though the space leased this quarter by flex operators was down by 45% q-o-q.

However, during the Jan-Sep period of 2022, the flex segment has leased over 6.6 mn sq ft of space, second only to the 10.4 mn sq ft leased during the full year of 2019.