South cities contribute almost 60% of the 38 msf office demand in YTD 2023

• YTD 2023 witnessed 38 mn sq ft of gross absorption, almost at par with 2022 levels 
• Bengaluru and Delhi NCR drove demand with about 50% share in gross leasing 
• Demand more broad-based across sectors – Technology sector dominant at 25% share, Flex, Engg & Manufacturing, BFSI share at 15-20% each 
• Domestic players driving office demand amidst global economic volatility 
• Vacancy and rentals remained rangebound led by steady supply and demand 

Gurgaon, India, 29 September 2023: The first three quarters of 2023 recorded 38 mn sq ft of gross absorption across top 6 cities, almost equivalent to the gross absorption of corresponding period in 2022; signaling sturdy momentum, despite ongoing global volatility. Bengaluru and Delhi NCR led the demand during Q1-Q3 2023, accounting for about half of the total demand of office space in India. The third quarter alone witnessed 13.2 mn sq ft of leasing activity across the top six cities, slightly higher than the average 12.6 mn sq ft quarterly demand since 2022. 

Trends in Grade A gross absorption (in million sq feet) 

	Q3 2022	Q3 2023	Q3 2023 (YoY  change)	YTD 2022	YTD 2023	YTD 2023   (YoY change)
Bengaluru	4.4	3.4	-21%	12.8	10.1	-21.3%
Chennai	1.0	1.4	41%	3.6	6.3	75.7%
Delhi-NCR	4.3	3.2	-25%	8.9	8.5	-4.7%
Hyderabad	1.0	2.5	138%	4.8	5.2	9.8%
Mumbai	1.6	1.7	4%	5.6	4.4	-23.3%
Pune	0.6	1.0	59%	4.1	3.6	-13.1%
Pan India	12.9	13.2	2%	39.8	38.0	-4.5%

Source: Colliers 

Note- YTD: 1^st January to 30^th September of the year 

Gross absorption: does not include lease renewals, pre-commitments and deals where only a letter of Intent has been signed.

Top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune

Demand is more diversified; Flex, Engineering & Manufacturing and BFSI sector contribute significantly towards space take-up 

2023 has been characterized by demand diversification. Although technology sector continues to drive the demand with a 25% share in YTD leasing, demand is now more broad-based spanning across sectors. The shares of flex spaces, Engineering & Manufacturing and BFSI sectors have seen significant sectoral gains by up to 6 percentage points (pp) each.  Flex spaces, especially, continue to perform well in 2023, as occupiers continued to prefer dynamic working arrangements for their portfolios. Overall, Bengaluru and Delhi NCR were the most preferred locations for flex players for their expansion. 

“Contrary to earlier belief, India office demand for the first three quarters of 2023, has followed an overall trajectory almost similar to 2022. With strong domestic macro-economic indicators backing the demand of office space, the momentum is likely to continue in the last quarter of the year. It would be interesting to see if 2023 could breach the historic high leasing activity of 2022.” says Peush Jain, Managing Director, Office services, India, Colliers. 

“Driven by tech-based occupiers, the southern office markets of Bengaluru, Hyderabad and Chennai continue to witness heightened leasing activity. The three cities accounted for bulk of the demand, with about 57% share in the first three quarters of 2023. While Chennai’s Q3 demand rationalized, Hyderabad witnessed a strong 64% QoQ growth in gross leasing. Although, Bengaluru will continue to dominate India leasing activity in 2023, Chennai and Hyderabad are likely to see greater demand acceleration in the last quarter of the year.” says Arpit Mehrotra, Managing Director, Office services, South & Head of Flex, Colliers India. 

Amidst global uncertainties, domestic occupiers driving the office market activity in YTD 2023 

While foreign origin companies have been driving the office space demand pre-pandemic, domestic occupiers have become active influencers in India’s office market 2022 onwards.  Despite the global economic volatility, domestic occupiers accounted for almost half of the office space take-up in 2023.  While tech occupiers both domestic and foreign, prolonged their real estate portfolio level decisions, domestic companies especially from the Engineering & Manufacturing, BFSI, Pharma & Healthcare and flex spaces stepped up and took up incremental office space across the top 6 cities of India. 

Vacancy levels remained rangebound led by nearly steady new supply and demand 

During YTD 2023, new supply across the top six cities dipped 1% YoY. Around 33 mn sq ft. of developments were completed in first three quarters of 2023.  Hyderabad witnessed significant new completions, contributing to 37% of the total new supply, closely followed by Bengaluru with 33% share. The first three quarters of 2023 has seen an average of 10.9 mn sq ft of new deliveries, at par with the 10.7 mn sq ft quarterly average of 2022. Led by nearly steady demand and supply influx, overall vacancy and rentals remained rangebound. 

Trends in Grade A new supply (in million sq feet) 

City	Q3 2022	Q3 2023	Q3 2023 (YoY change)	YTD 2022	YTD 2023	YTD (YoY change)
Bengaluru	2.3	2.9	23%	8.1	10.7	32.0%
Chennai	–	0.2	100%	4.2	3.4	-19.6%
Delhi-NCR	3.9	–	-100%	6.5	3.3	-47.8%
Hyderabad	1.5	6.7	347%	7.9	12.1	52.9%
Mumbai	0.7	0.3	-58%	1.8	0.9	-52.0%
Pune	0.8	0.7	-6%	4.5	2.3	-49.6%
Pan India	9.2	10.8	17%	33.0	32.7	-1.0%

Source: Colliers 

Top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune

“Despite externalities, fundamentals of India office market remain strong, and 2023 activity has been at par with 2022. While there is a healthy supply pipeline for the next few years, developers have been cautious of infusing supply in tandem with market demand dynamics. Vacancy levels since 2022 have been in the range of 15-20% across most cities, signaling stability in occupancy levels. Return to office mandates, despite increased preference for hybrid working augurs well for the near-term office space demand. Consequentially, rentals are likely to remain firm across key micro markets.” says Vimal Nadar, Senior Director and Head of Research, Colliers India.