Office vacancy levels drop sharply in India’s top 6 cities, strong comeback for commercial real estate

Office vacancy levels in India’s top 6 cities decreased by 190 basis points year-on-year (YoY) to 16.6 per cent, amid the high office space utilisation seen in 2022, demonstrating a strong comeback and steadiness in the commercial office markets, as per a new report from real estate major Colliers.   

The top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune. 

Vacancy numbers have decreased each quarter of 2022 as leasing momentum has remained positive.  

According to the Colliers report, total leasing during the year was noted at 50.3 million square feet, the highest in any year.  

Ramesh Nair, CEO of India and Managing Director, Market Development, Asia, Colliers, said, "It is encouraging to see the office market stabilizing this year with vacancies dropping after a gap of two years. Interestingly, BFSI companies have expanded rapidly this year, with Indian banks as well as global financial institutions leasing large office spaces. Leasing by BFSI almost doubled since last year, accounting for a 14 per cent share in total leasing, equivalent to flex space. This resonates with the earnings boom seen in the BFSI sector this year. Mumbai witnessed the highest BFSI leasing at 40 per cent share, as financial institutions made their comeback to offices." 

Although there was a slowdown in market activity in Q4 2022, occupiers adopted a cautious attitude amid a global recession. Because of this, gross absorption in Q4 2022 was almost 21 per cent lower than it was on average between Q1 and Q3 2022. 

But over a 72 per cent increase was seen in Delhi-NCR than the previous year. The pent-up demand in 2020 and 2021 caused the gross absorption for 2022 to increase significantly. The minor decline in Q4 can be attributed to the rapidly spreading slowdown, particularly in the technology sector. 

Leasing the flex space 

Flex space, or those that contain a mixture of industrial and office space, operators leased 7 million square feet in 2022, the most ever, and accounted for nearly 14 per cent of all leasing. Since last year, flex operators have leased more offices in Grade A buildings, driven by increased demand from large businesses.  

More than 50 per cent of the year's flex space take-up was accounted for by Bengaluru and Pune, which continue to be popular cities for flex space operators. Engineering, consultancy, and BFSI companies occupied more office space this year than in previous years.  

As per Colliers, in 2023, occupiers should concentrate on offering flexibility and fostering a dynamic workplace culture as they streamline their workplace strategy for the years to come. To build better portfolios, developers must construct productive workplaces that encourage collaboration, with an increased emphasis on sustainability and technology. 

Also Read: Infosys, Wipro, TechM onboarding delay: Former HCL Tech CEO Vineet Nayar says this has happened before - BusinessToday