The last quarter of 2023 saw India's highest-ever demand for office space, with three southern cities, Bengaluru, Chennai, and Hyderabad, posting the best results since the Covid-19 pandemic. According to Colliers India, the fourth quarter of 2023 catapulted India's office leasing market to unparalleled heights, culminating in a record-breaking 58.2 million square feet of gross absorption.

According to statistics reviewed by property consulting firm Colliers, while Bengaluru and Delhi NCR drove lease activity during 2023, contributing to about half of the total demand for office space in India, Chennai made it to the top three list for the first time.

Note: Gross absorption excludes lease renewals, pre-commitments, and transactions in which only a letter of intent has been signed. Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune are among the top six cities. With more than double the leasing activity in 2023 compared to 2022, Chennai broke all previous records and recorded 10.5 million square feet of gross absorption.

"Indian commercial real estate and office markets will continue to attract both domestic and foreign-origin occupiers." more demand for a mix of core and flex real estate space, more activity in tier II areas, and next-generation buildings with more sustainable aspects will be major trends for office markets in 2024," stated Arpit Mehrotra, Managing Director, Head of Office Services, Colliers India.

Demand for Technology is Being Rationalized

The proportion of the IT industry to office leasing has rapidly reduced from over 50% in 2020 to just 25% in 2023. While demand from tech occupiers was rationalizing, total leasing activity continued to diversify. Sectoral contributions from the BFSI and engineering and manufacturing sectors, in particular, have nearly doubled, rising from 10-12% in 2020 to about 16-20% in 2023. In the Bengaluru tech area, leasing by Engineering and Manufacturing businesses (26% share) outpaced demand emancipating from Technology enterprises (22% share) in 2023.

Flex operator demand remained steady; at 8.7 million square feet, flex space uptake in 2023 was 24% greater than in 2022. Flex penetration in the Indian office market is predicted to expand further in 2024 as developers embrace a core plus flex decision-making strategy.

Resurgent Interest in Mega Transactions

After a temporary lull, occupier confidence in the business environment has translated into high demand for office space. Large acquisitions (>100,000 sq ft) have indicated a 24% yearly growth in 2023 at roughly 30 million sq ft. Global Capability Centres (GCCs) often have high space requirements, and they, too, increased their expansionary efforts in the second half of 2023, particularly in the fourth quarter. Almost 40% of the top six cities' significant agreements have come from GCCs, mainly in the IT and BFSI sectors. Top transactions in the fourth quarter of 2023

"Large-sized offices of 100,000 sq ft or more account for nearly half of total office space demand in India." Surprisingly, more than half of the significant GCC deals were completed in the fourth quarter of 2023, indicating increased momentum in the country's GCC activities. A big reservoir of talent, low-cost rentals, appropriate Grade A developments, and a favorable office market ecosystem will help India maintain its vantage position as a capabilities center. Furthermore, high demand for office space in 2024 will be driven by solid demand from domestic enterprises in technology, BFSI, manufacturing, healthcare, and flex spaces." Colliers India Senior Director and Head of Research Vimal Nadar stated.

Rents are Increasing 

With 50.1 million square feet of new completions, fresh supply across the top six cities increased by nearly 17% year on year, reflecting increased developer confidence in near-term space uptake. While Bengaluru accounted for 35% of new completions in 2023, Hyderabad came in second with a nearly 30% share on an India-wide basis. Vacancy levels remained range-bound despite robust performance on both the demand and supply sides. Meanwhile, most average rentals climbed by up to 5%.