India’s office sector can see leasing of 38 mn sq ft in ‘23

Mumbai: In an optimistic scenario, India’s office sector is likely to see about 35-38 million sq ft of gross leasing in 2023. In such a case, the economic headwinds are expected to ease out by Q2 2022, and not cause a significant dent to overall occupiers’ confidence. This will translate into a significant increase in space take-up as larger occupiers will close leasing decisions that were put on hold temporarily.

On the contrary, in a pessimistic scenario, the impact of economic headwinds would be prolonged, delaying a recovery in demand. In this scenario, Colliers expects 2023 leasing to be about 30-33 million sq ft at a gross level. The report suggests that while the office market in 2023 looks uncertain currently, it might bounce back with relative ease despite the global headwinds and other externalities.

Leasing activity is likely to pick up in the second half of the year, led by global capability centers, BFSI companies and start-ups with sound business models.

The latest report by Colliers, in collaboration with FICCI, highlights how, hybrid working is likely to optimize space utilization and will continue to influence physical work infrastructure and how we work. Further, flex spaces will continue to be a major focal point for landlords and occupiers.

“The growth in traditional and flex spaces has been robust in 2022 as occupiers were more upbeat about leasing space and expanding their footprint. In 2023, despite the office market being riddled with uncertainty, the office sector is poised for growth, provided the economic environment remains bright. We do not expect the leasing numbers to fall below the peak pandemic levels of leasing even in a pessimistic scenario. The key fundamentals of office market will follow the trajectory of demand and supply to maintain a balance in the market,” said Peush Jain, MD - Office Services at Colliers India.

Hybrid working is optimising office space utilisation

Led by various employee-centric and operational benefits, occupiers are embracing hybrid working model. As per an occupier survey conducted by Colliers on Hybrid working in September 2022, 63 per cent of the occupiers are embracing hybrid working model and is only expected to increase. Post pandemic, the nature of office space take up is changing as occupiers are focusing on de-densification of spaces. Occupiers are transitioning towards hybrid work, optimising office space, and making them more amenable for collaboration.

Occupiers are also looking at splitting office spaces across business hubs, as employees prefer working from locations closer to homes. Amidst fast-shifting market dynamics, flex spaces to remain upbeat. Offices have become resilient and are seeking ways to seamlessly weave hybrid mode of working through flex spaces – which are a ‘one-stop solution’ for occupiers. During 2022, flex operators in India, leased 7 millon sq ft of Grade A office space rising more than three-fold compared to the pandemic levels. However, even amidst the ongoing flux in the tech sector, occupiers are likely to take up flex spaces for leasing led by the flexibility in leasing terms and short-lease tenure offered by flex players, easing up their capital expenditure.

How will the office sector perform during 2023?

During 2023, a relative slowdown is expected in overall traction especially from the tech sector due to the ongoing layoffs triggered by slower external demand. However, leasing by flex, engineering and BFSI companies are expected to remain resilient. Time will tell whether the office market will surpass the recessionary concerns and set its ground in the latter part of 2023 or will the economic headwinds have a prolonged impact. However, the market is sturdy enough to dodge back as it did during the pandemic times.

Talking to Bizz Buzz, Vimal Nadar, Head of Research at Colliers India, says, “While the year 2022 recorded the highest office leasing underpinned by recovery and growth, 2023 has begun with some caution led by recessionary concerns. During 2023, gross office leasing might close at 35-38 million sq ft provided the global economic environment shows healthy recovery by end of first half and leasing picks up.”

Though demand from tech companies might be subdued owing to the ongoing layoffs, demand from global capability centers, BFSI, and start-ups are likely to gain share. As occupiers continue to review their approach towards work, hybrid working model is here to stay and is setting the right frequency for occupiers and employees, he said.

Hybrid working has been a game-changer in the future of work. To accommodate employees’ changing needs, occupiers are likely to switch gears towards adoption of hybrid model. This would benefit companies through optimal space utilisation. Occupiers are also likely to split their large offices into satellite offices, to bring offices closer to employees’ home, he added.

As a byproduct, the demand for flex spaces is likely to see an uptick. In the next few years, hybrid working is likely to pivot key office fundamentals, and will be especially critical for the growth of flex spaces.