Office market back in demand in Q1 2022 after COVID-19 onslaught, says study

The office absorption across major Indian cities is at a two-year high, signaling a revival of the sector, as per a report by the real estate consultancy firm, Colliers India. The report mentions that office vacancy, which saw a consistent rise over past many quarters, has not increased during Q1, 2022 and has remained stable at 18.5 per cent. On the other hand, the gross office absorption has risen almost 3 times year-on-year (YOY) in Q1, 2022 at 13 million square feet, the highest ever in two years.

This shows that Q1, 2022 has been a watershed period for the commercial office sector, with the office sector shrugging off the relatively low demand seen over the last two years. The office market started picking up since H2 2021, with the momentum continuing onto Q1 2022 too. This has been led by large deals returning to the market, well supported by an infusion of quality supply across the prominent markets, according to Colliers India.

The return to office initiatives undertaken by the Indian corporates after relatively less impact of the third wave of COVID-19 on economy, as per the report, has led to the higher office absorption rates.

Which city saw the highest office absorption?

The IT hub Bengaluru grabbed a major chunk of office absorption for Q1, 2022 with a 31 per cent share followed by cities such as Pune and Hyderabad, each constituting a 17 per cent market share. Compared to other cities, demand momentum in Delhi-NCR and Mumbai was relatively slower, as few large deals have been pushed to the subsequent quarters, the report mentioned.

The office supply, on the other hand, also doubled during the quarter, to about 14.3 million sq feet. The new supply was led by Bengaluru with a share of 29 per cent. This was followed by Chennai and Pune with a share of 22 per cent each of the total supply.

“This quarter has seen occupier confidence swinging back with considerable large-sized deals that accounted for a whopping 55 per cent of the leasing during the quarter. This clearly shows that occupiers are consolidating offices as they prepare for workplace-led innovation and collaboration. This strong leasing comes at a time when occupiers in India have started opening their doors to employees after a hiatus of two years. Q2 2022 will be a crucial period as we expect more companies to open up workplaces. If the overall leasing momentum continues, then the year 2022 is likely to be a promising year,” said Ramesh Nair, CEO, India and managing director, Market Development, Asia, Colliers.
 
Tech companies take the lead

The fast-growing technology sector has taken the lead when it comes to office absorption with a 32 per cent share in Q1. Flex space saw its share increasing to about 15 per cent from 5 per cent in Q1 2021. This is led by strong demand from occupiers for flex spaces and the associated flexibility in leases that come with it. Mainstream corporates continue to explore managed offices, and this has led flex spaces to open new centers in metro cities and even in non-metro cities. Consulting and occupiers in the engineering and manufacturing sector accounted for 12 per cent each of the gross absorption, respectively, the report argued.