High Growth in Leasing

The office leasing is on a high, with Bangalore , Delhi- NCR and Hyderabad dominating the office absorption, driven by small to medium size transactions.

The office absorption recorded the highest ever quarterly growth of 18.2 million sq ft in Q 2 2022, with leasing activity growing by 61 percent in Q2 over Q 1 2022. Bangalore, Delhi-NCR, and Hyderabad dominated the office space absorption in Q2 and accounted for nearly two-thirds of the overall transaction activity. Among all major cities, Bangalore led the office space absorption with 5.6 mn sq. ft., followed by Delhi-NCR at 3.9 mn sq. ft. and Hyderabad at 2.6 mn sq. ft. in Q2 2022. Technology corporates drove leasing momentum with a share of about 31%, followed by engineering & manufacturing companies (16%), flexible space operators (12%), banking & financial services (BFSI) firms (12%), and e-commerce (7%) .

The report  by CBRE further highlighted that the  office space take-up in Q2 was driven by small- (less than 10,000 sq. ft) to medium-sized (10,000-50,000 sq. ft.) transactions with a share of around 84%. Bangalore, followed by Delhi-NCR, Pune, and Hyderabad, dominated large-sized deal closures during the quarter, while a few deals were also reported in Mumbai, Chennai,and Ahmedabad.

Due to decreasing vacancy and rising demand for premium assets, a rental increase of about 1-5% Q-o-Q was recorded across multiple micro-markets in Delhi-NCR, Chennai and Bangalore, and PBD Hinjewadi in Pune. Moreover, driven by growth in select premium assets, SBD Kharadi in Pune and PBD in Hyderabad recorded a rental rise of about 6-9% Q-o-Q.

The report points out that office space supply witnessed an uptick in Q2 2022, growing by 78% Q-o-Q and 64% Y-o-Y, touching 16.7 million sq. ft. The supply addition in Hyderabad was particularly notable, as the city’s stock crossed 100 million sq. ft. during the quarter, making it the fourth market in India after Bangalore, Mumbai, and Delhi-NCR to reach that milestone. Hyderabad, Delhi-NCR, and Bangalore led the supply addition during the quarter and in H1 2022, accounting for a cumulative share of 76% and 68%, respectively. On an H1 basis, office absorption stood at  29.5 million sq. ft., recording a growth of 157%(Y-o-Y). In H1 2022, about 26.1 million sq. ft. of new completions were witnessed , recording an increase of 26% Y-o-Y. 

According to Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE,he office sector in India reflected a strong recovery in H1 2022 as occupier sentiments were uplifted due to improving economic activity and  relatively reduced severity of the Omicron wave with  relaxed  restrictions, leading to resumption of  resuming offices with a flexible approach. CBRE’s Asia Pacific Leasing Sentiment Survey recorded a significant surge in leasing sentiments across most APAC markets in June 2022, with the highest rise witnessed in India. This also signifies that the outlook for annual space absorption for 2022 is likely to be higher than 2021.Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE believes that as,  the recovery momentum remains upbeat, differentiated and high-quality institutional supply in core markets would continue to draw flight-to-quality absorption.  In line with the expected demand, new investment-grade supply lined up across markets is expected to become operational in the coming quarters.

Going forward, Delhi-NCR, and Hyderabad will continue to drive transaction activity in 2022. Markets such as Mumbai, Pune, and Chennai would also witness improved leasing volumes.Space take-up would be attributable to the release of pent-up demand and expansion & consolidation requirements of occupiers.There will be a number of key noticeable trends.Renewals and renegotiations  will continue to remain the preferred short-term portfolio strategies of occupiers.Increased adoption of activity-based working, targeted mobility, and hotdesking  witnessed post the pandemic , is expected to grow further.Technology would be key to implementing hybrid working going forward, indicating of increasing investment in WorkTech.Post-pandemic ,flexible work patterns have increased in prevalence . However, several occupiers are yet to formally define hybrid working and formulate the requisite policies and guidelines for their employees.The use of flexible spaces – including managed offices and coworking spaces  in corporate real estate portfolios would continue to become more prominent in the long term.