Hyd dominates large-sized office lease in India

Hyderabad Hyderabad dominated in large-sized office space leasing deal (greater than 100,000 sq ft) closures in April-June quarter (Q1) of FY 2022-23, says a report. A few such deals were also reported in Pune, Chennai, Bengaluru and Delhi-NCR. However, Hyderabad is likely to continue its leadership in office space completions, followed by other cities.

Hyderabad recorded 2 million sq ft of office space absorption in Q1 of FY 2022-23, as per the real estate consulting firm CBRE South Asia Pvt Ltd’s latest report. The key sectors that drove leasing activity include technology, flexible office space segment and banking, financial services and insurance (BFSI) corporates.

According to the report, small-sized (less than 10,000 sq ft) to medium-sized (10,000 – 50,000 sq ft) transactions drove office space take-up in Q1 FY’23 with a share of 85 per cent – a marginal increase on a Q-o-Q basis. The share of medium-sized deals increased to 54 per cent in Q2 2023 from 48 per cent in the previous quarter. In Q1 FY23, the share of large-sized deals remained similar to Q1 2023 at 6 per cent.

The technology firms led the office space take-up in the city with a 44 per cent share, while the flexible space operators and the BFSI players absorbed 25 per cent and 8 per cent respectively. Some of the major transactions recorded in the city during Q1 FY’23 include EA Sports leased 2.5 lakh sq ft in Nexity, UST Global and London Stock Exchange Group leased 1.2 lakh sq ft each in International Tech Park Hyderabad.

The report further highlighted that Hyderabad office space absorption was driven by small-sized (less than 50,000 sq ft) deals. On a pan-India basis, the report highlighted that office leasing activity increased by 12 per cent Q-o-Q and touched 13.9 million sq ft during Q1 FY’23 period. Bengaluru, Chennai and Pune led the absorption in Q1 FY’23, accounting for about 59 per cent of the transaction activity.

Across India, technology companies witnessed an uptick in activity, accounting for 29 per cent of the leasing, followed by flexible space operators (18 per cent), engineering & manufacturing firms (17 per cent) and BFSI (17 per cent). Leasing in the BFSI sector was driven by deal closures by global capability centres of BFSI, Indian banks, and insurance firms. Most of these corporates are focusing on expanding their footprint.

Total office space supply stood at 12.4 million sq ft in Q1 FY’23, an increase of 6 per cnet Q-o-Q. Hyderabad, Bengaluru and Chennai led supply addition during the quarter, accounting for a cumulative share of 84 per cent. The non-SEZ segment continued to dominate development completions in Q1 FY’23, SEZ supply accounted for 24 per cent of the new developments, compared to 11 per cent in Q1 FY’23).

The report points out increasing focus of developers on sustainability, 46 per cent of the newly completed developments during the current quarter were green-certified (LEED or IGBC). Similar to the previous quarter, domestic firms continued to lead the absorption in Q1 FY’23, accounting for a share of 43 per cent and 46 per cent respectively. This was mainly led by flexible, tech and BFSI firms.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, said, “India is expected to be amongst the world’s fastest-growing economies amidst a likely weakening of global macroeconomic conditions. We believe that the share of domestic firms in leasing would remain strong during the year. Greater emphasis on return to offices (RTO) is also expected to boost their operations.”

“Occupiers’ concerns regarding global macroeconomic headwinds would persist in the short term. Nonetheless, favourable demographics, a high-skilled & cost-effective talent pool, robust technology & startup ecosystems, availability of high-quality office spaces at sub-dollar rentals, and beneficial government policies would continue to drive corporates’ real estate portfolio expansion in India,” he adds.

Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India, said: “Occupiers continue to focus on bringing employees back to the office, even as hybrid working prevails across most sectors. Bengaluru, Delhi-NCR, Chennai, and Hyderabad are expected to drive absorption in 2023, while Mumbai, Pune and Kolkata would also witness robust space take-up.”

He further said: “Some occupiers would also consider expanding to select tier-II markets, owing to improving infrastructure, availability of skilled talent and attractive rentals. While technology firms would continue to drive leasing activity in India in 2023, demand is also expected to become more diversified, with growth likely across sectors such as BFSI, flexible space operators and engineering & manufacturing".

During Q1 FY’23, leasing activity in the office sector across India declined by 12 per cent Y-o-Y to about 26.4 million sq ft. Further, absorption in Q1 FY’23 was led by Bengaluru, Chennai and Delhi-NCR, which together accounted for 60 per cent of the leasing. Bengaluru, Hyderabad and Delhi-NCR led supply addition in Q1 FY’23 with a combined share of 68 per cent.