India’s office leasing space market skyrockets in 2023

Q4 2023 witnessed an astounding 58.2 million sq ft in office space absorption, marking a staggering 16 per cent y-o-y growth in demand

Hyderabad: India's office market experienced a remarkable surge in 2023, culminating in a record-breaking gross absorption of 58.2 million square feet across its top six cities. Contrary to earlier expectations, the year concluded on a spectacular note, particularly in the last quarter, which witnessed the highest-ever demand for office spaces in the country.

During the year, Bengaluru and Delhi NCR were the primary drivers of leasing activity, collectively constituting about half of the total demand for office spaces in India. However, Chennai emerged as a surprise, entering the top three list for the first time and recording 10.5 million square feet of gross absorption, more than doubling its leasing activity compared to 2022. Hyderabad also registered remarkable growth of 22.7 per cent from 6.5 million sft in 2022 to eight million sft in 2023.

Regional Performance

Here's a breakdown of the Gross Absorption in million square feet for 2023 compared to 2022, showcasing the year-on-year change:

Sectoral Changes

The technology sector's contribution to office leasing decreased from 50 per cent in 2020 to 25 per cent in 2023. Meanwhile, sectors like BFSI and Engineering & Manufacturing doubled their contributions, reaching around 16-20 per cent in 2023. Interestingly, Engineering and Manufacturing sectors surpassed Technology firms in Bengaluru with a 26 per cent share, outstripping their 22 per cent share.

Demand drivers

2024 Outlook

Industry experts, like Arpit Mehrotra, Managing Director at Colliers India, anticipate a positive start to 2024 due to the momentum from Q4 2023. The office market is expected to witness a combination of core and flex real estate space, heightened activity in tier II markets, and next-gen offices focusing on sustainability.

Large deals and GCCs

Large deals (>100,000 sq ft) contributed significantly to office space demand in India, accounting for almost 50 per cent of the total.

Global Capability Centres (GCCs) resumed their expansion activities in the second half of 2023, with around 40 per cent of large deals stemming from them, primarily in the technology and BFSI sectors.

Supply and rentals

The healthy supply infusion of 50.1 million sq ft in 2023 across the top six cities maintained vacancy levels rangebound, while average rentals increased by up to 5 per cent in most Indian cities.

The Indian office market's robust performance in 2023 signals sustained interest from both domestic and foreign occupiers, promising a dynamic landscape for commercial real estate in the coming year.