Office Market Update: Q4 2022

Gross leasing activity for the calendar year 2022 was recorded at 49.8 mn sq ft, hitting a three-year high as a COVID-free year and greater certainty in the business environment supported on-ground real estate activity with occupiers approaching their portfolio strategies with much more clarity. Delhi NCR and Bengaluru are the two biggest office markets in terms of full-year 2022 gross leasing activity followed by Mumbai. These three markets account for over two-thirds share of occupier activity for the 2022 calendar year. On a sequential basis, GLV was up by 26.0% with Mumbai, Bengaluru and Delhi NCR accounting for a 23.5%, 19.6% and 18.8% share, respectively during the quarter.

India’s net absorption number across the top seven cities for the full year was recorded at 38.25 mn sq ft, marking a post-COVID high. In fact, the net absorption for the calendar year 2022 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.

A strong year with record-high completions and previous pre-commitments being honoured by most occupiers with a momentum-picking return to work pushing office occupancies higher has supported the net absorption numbers for 2022. India continues to remain an actively growing office market with positive job creation and its established and further-growing credentials as a tech and innovation hub is supporting more R&D work coming into the country. Most companies’ expansion plans remain intact albeit with an anticipated delay given the global headwinds, but more firms continue to look at India from a talent and business perspective, all of which account for the strong 2022 performance and augurs well for the future.

Key trends in office segment in Q4 2022

Net absorption is down by 19% q-o-q basis

The quarterly net absorption in Q4 was down by 19.0% q-o-q at 7.99 mn sq ft, as early signs of sluggishness driven by global headwinds saw delayed decision-making and a cautious approach from occupiers impacting deal closures in the last quarter of the year. The quarterly net absorption was also the lowest in five quarters. Delhi NCR led the way with a 23.7% share of net absorption, with Hyderabad and Chennai showing strong year-end momentum to power ahead of even Mumbai and Bengaluru. The top three cities, combined for a 60.9% share of net absorption, driven by strong supply addition backed with previous pre-commitments.

Quarterly supply at 14.83 mn sq ft; up by 23.8% q-o-q

New completions were recorded at 14.83 mn sq ft in Q4 2022, up by 23.8% q-o-q. Completions in Q4 2022 were headlined by Hyderabad and Bengaluru which combined for a 60.5% share of the quarterly supply additions. Just around 23% of the new supply was pre-committed, highlighting that occupier decision-making turned slightly bearish in the last 3-4 months.

Vacancy increases by 60 bps during the quarter

The Pan-India vacancy has risen to 16.6%, up 60 bps q-o-q with a stronger supply infusion compared to expansion-driven occupier activity. Though the overall 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 continued to lead leasing activity

Transaction activity by tech turned sluggish and was visible in its reduced market share, though it remained at the top with a 25.3% share. BFSI showed good momentum backed by some large transactions witnessed in Mumbai during the quarter with its share of gross leasing at 14.0%. The manufacturing, Telecom, Healthcare & Real Estate and consulting segments held shares of 12%, 15% and 11%, respectively. For the calendar year 2022, tech leads with a 27.7% share followed by flex with 18.5% and manufacturing/industrial with 13.8%, respectively.

Flex continued to see a golden run with a share of 18.8% share in Q4 leasing activity

The fast-growing flex segment contributed a share of 18.8% in gross leasing during the quarter. On a quarterly basis, the share of this segment has also risen from 14.4% to 18.8%. During the whole year of 2022, the flex segment leased over 9.2 mn sq ft of Grade A space, second only to the 10.2 mn sq ft leased during 2019.