Office space market plunges in Q1 amid global economic uncertainty

After growing by leaps and bounds in 2022, India’s office space market has been hit by the ongoing global economic uncertainties in 2023. As leading multinational companies, especially in the information technology space, resorted to retrenchments and cost cutting measures, the country’s office space market declined significantly.

As per latest data from leading real estate services company Savills, office space segment in India’s top six markets registered a 11 per cent decline in absorption during the January-March quarter. During the period, the largest six markets in the country - Mumbai, Delhi-NCR, Bengaluru, Pune, Hyderabad and Chennai recorded 14 million square-feet absorption - nearly 11 per cent lower than the same period in 2022. Among these, Mumbai - the largest market in the country - reported a 32 per cent decline in absorption. While, Bengaluru - the third largest market - reported a 29 per cent year-on-year decline. Among the top markets, only Delhi-NCR and Hyderabad witnessed growth in absorption - by 26 per cent and 50 per cent, respectively. 

As leading companies shied away from office leasing activities, supply of office spaces at these markets fell by a whopping 31 per cent over the corresponding quarter previous year. During Jan-Mar, 13.1 million sq.ft. of new office supply hit the market. In Mumbai, the fall in new supply has been starker - at 73 per cent - followed by Chennai (-52 per cent) and Bengaluru (-43 per cent). It was only in Hyderabad where new supply grew by 61 per cent. In fact, Hyderabad remained the hottest market, in terms of new supply, with 3.7 million sq.ft. of office spaces added during the quarter, followed by Pune (3 million sq.ft.).

“While quarterly absorption has improved in Q1 2023, there is evidence of global headwinds and related pressures, as seen in 11 per cent annual decline in gross space absorption compared to Q1 2022,” said Naveen Nandwani, Managing Director -Commercial Advisory and Transactions, Savills India. According to him, the only bright spot, however, is the strong resurgence of Flex spaces, which has accounted for more than a quarter of the overall demand in the first quarter. “The demand is expected to pick up in due course, but Q1 performance implies that estimates for full-year 2023 remain biased on the side of caution,” Nandwani added.

Vacancy levels, however, remained somewhat stable during the period. Data from Colliers India shows, overall vacancy levels at top markets stood at 16.4 per cent during March quarter compared to 18.5 per cent a year ago.

“At a time when occupiers are delaying decision making on leasing office spaces amidst continued economic uncertainties, the office market witnesses signs of stability in Q1 2023 with the vacancy levels remaining intact at 16.4 per cent compared to the previous quarter. Going ahead, we expect demand and supply to move in unison, keeping the vacancy and rental levels rangebound. The latter part of 2023 may see signs of strong recovery provided the recessionary concerns lessen in the beginning of the second half of 2023,” said Peush Jain, Managing Director, Office services, India, Colliers.