January 2, 2024: In the fourth quarter of 2023, the Indian office sector witnessed a remarkable achievement with the highest Gross Lease Volume (GLV) among the top eight cities, reaching 27.4 million square feet. This reflects an impressive 84% growth compared to the previous quarter and a substantial 48% year-on-year increase, as reported by Cushman & Wakefield in their Q4 office data analysis. The report highlights that not only is this the peak quarterly GLV, but it also surpasses the previous record set in Q4-2019 by a significant margin of 4.5 million square feet. The Gross Leasing Volume, encompassing all leasing activities, including corporate term renewals, serves as an indicator of the overall market activity. With a new annual peak of 74.7 million square feet for 2023, it exceeds the historic high of 2022 GLV by approximately 4%, according to the report.
As per the report, driven by a change in both global and Indian macroeconomic outlooks, numerous occupiers who had exercised caution in preceding quarters were observed finalizing their office needs in Q4. After three quarters of stagnation, larger deals began to reemerge, with average deal sizes in Q4 experiencing a notable 37% increase compared to the averages recorded in the previous three quarters.
As stated in the report, the surge in office demand is primarily attributed to new lease agreements and, in some instances, the completion of buildings with substantial pre-commitments being expedited, resulting in a robust level of net absorption during Q4-23. With an active pipeline of deals, this positive trend in leasing fresh office space is anticipated to persist in the coming two quarters.
The net absorption, serving as a gauge of actual demand or the expansion of occupied space in the market, achieved its highest volume ever in the quarter, reaching 18.6 million square feet across the top 8 cities. This marks a remarkable 129% quarter-on-quarter growth and a substantial 106% year-on-year growth. The report highlights that for the entire year, net absorption totaled 41 million square feet, a figure only 2 million square feet less than the highest recorded net absorption volume in the Indian office sector back in 2019.
Office leasing trends on city level
Bangalore recorded three times the office leasing volumes as compared to last quarter. The city registered a growth of 21% over its previous peak of Q2-2022 volume, with over 8.3 msf of leasing volume in Q4-2023. Further, the city accounted for over 40% of the country’s overall net absorption, with demand for fresh space driven by E&M sector (30%), followed by IT-BPM (22%), professional services (13%) and flex space operators (9%). With return-to-work of employees picking up faster in sectors such as E&M, Prof. Services and BFSI, therefore, the requirement for space by these sectors seems to precede IT-BPM, the report highlighted.
Moreover, Chennai also witnessed record leasing, with the volume for the quarter standing at around 3.5 msf, a growth of 96.8% Q-O-Q. When compared with the Q4 numbers of 2022, Chennai witnessed a significant growth of 109%. Mumbai’s office market has also shown good traction with 54% & 15% quarterly and yearly growth, respectively, as per the data by Cushman & Wakefield.
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Sectors contributing to leasing volume in Q4
The report indicated that the market is undergoing diversification, with the traditionally dominant IT-BPM sector contributing only 20% to the Gross Lease Volume (GLV). Conversely, the Engineering & Manufacturing (E&M) sector emerged prominently, nearly matching the IT-BPM sector with a 19.2% share, followed by the BFSI sector with approximately a 16% share. Global Capability Centers (GCCs) and the Flex sector each held a share of around 9.5-10% in GLV.
In terms of new completions and vacancy across the top eight markets, the quarter witnessed a record-setting influx of approximately 18 million square feet of new supply. The last time such a substantial supply entered the market in a single quarter was in Q2-2019, totaling around 19.5 million square feet. Throughout the entire year, a cumulative total of 48 million square feet of new supply entered the market across the top 8 cities, falling short by approximately 2 million square feet when compared to the previous year. Almost 55% of the Q4 supply was concentrated in two major tech cities – Bangalore and Hyderabad, with the next significant portion entering Delhi-NCR and Pune. Despite the substantial supply during the quarter, the vacancy rate for Grade-A offices remained largely unchanged at 18.4%, underscoring the impact of robust demand in the market.
Anshul Jain, managing director, India & South East Asia and Head of Asia Pacific Tenant Representation said, “We have always maintained that the fundamentals of India’s office market are strong. While we anticipated a healthy performance this year despite global headwinds and economic uncertainties, Q4 and the entire year 2023 have exceeded even our most optimistic projections and turned out to be the best one ever. A turnaround in the economic growth outlook for India in Q4, coupled with resilience seen in the global economy, could be a factor for fence-sitting occupiers to move ahead swiftly. These record-breaking numbers are a testament to the evolving needs of businesses and the increasing attractiveness of India’s office market. We anticipate a healthy and strong pipeline for India’s office sector in 2024 as well.”
Veera Babu, managing director, Tenant Representation, India, said, “This is the second consecutive year when gross leasing in the office real estate sector has crossed the 70 msf mark, recording a 4% growth over the landmark numbers of 2022. This potentially signifies a sustained period of growth aligned with the country’s long-term economic trajectory. We have also seen a paradigm shift: the previously IT-BPM dominated landscape is now giving way to a much more diversified range of industries fuelling the office sector growth. A significant rise in the E&M and GCCs share in GLV is potentially indicating at office market’s response to a gradually diversifying economy.”
