India’s office market net absorption touch 38.25 million sq. ft in 2022: JLL

NEW DELHI: India’s office market net absorption across the top seven cities i.e. Mumbai, Delhi-NCR, Bengaluru, Hyderabad, Chennai, Kolkata, and Pune was recorded at 38.25 million sq. ft in 2022, hitting a three-year high, according to JLL India.

The net absorption for the calendar year 2022 has surpassed the five-year pre-pandemic average (2015-2019) by 3.1% as well and is second only to the 2019 net absorption numbers for the past 10 years, showcasing the strong resilience of the Indian office markets.

Bengaluru with a 23.7% share retained its leadership position accounting for the highest net absorption for the calendar year 2022, with Hyderabad close behind in the second spot. Pan-India net absorption as a result was a strong 46.1% higher year-on-year basis.

“The office market in India has made a strong recovery in 2022 with the year emerging as the strongest in terms of office market performance post-COVID and second only to 2019 over the last decade. Even with the evolving hybrid work ecosystem, we have seen a sharp rise in office occupancy levels. This has resulted in a strong demand pick-up with occupiers approaching their real estate strategies with greater clarity and agility,” said Rahul Arora, head (Office Leasing Advisory India) & managing director (Karnataka & Kerala), JLL India.

On a Quarter-on-Quarter (Q-O-Q) basis, net absorption is down by 19% at 7.99 million sq. ft, as early signs of sluggishness driven by global headwinds saw delayed decision-making and a cautious approach from occupiers impacting deal closures in the last quarter of the year.

In Q4 2022, Delhi NCR led the way with a 23.7% share of net absorption, with Hyderabad and Chennai showing strong year-end momentum to power ahead of even Mumbai and Bengaluru during the quarter. The top three cities, combined for a 60.9% share of net absorption in Q4 2022, driven by strong supply addition backed with previous pre-commitments.

“Space requirements have shown a slight softening with active requirements declining by about 15% as many real estate plans have gone on hold or put off indefinitely given the evolving macroeconomic headwinds. We are likely to see some delayed decision-making as businesses look at macroeconomic signals before committing capital for new offices. Office demand is expected to be similar to 2022 with a marginal to slight upside,” said Dr. Samantak Das, chief economist and head of Research and REIS, India, JLL.

Gross leasing activity for the calendar year 2022 at 49.41 million sq. ft was up up 47.4% year-on-year and hit three-year highs. Delhi NCR and Bengaluru are the two biggest office markets in terms of full-year 2022 gross leasing activity followed by Mumbai. These three markets account for over two-thirds share of occupier activity for the 2022 calendar year.

Mumbai, Bengaluru and Delhi-NCR accounted for a 23.5%, 19.6%, and 18.8% share of gross leasing activity during the Q4 2022 quarter.

Demand for flex continues to remain on an upward curve with the flex operators’ footprint growth an apt marker of the rising role that flex is playing in real estate portfolio strategies. The calendar year 2022 flex seat take-up is hit an all-time high of 131,700+ seats. In Q4 2022, flex seat leasing by enterprises in the form of managed or enterprise solutions recorded its strongest quarter yet with ~38,140 seats taken up.

For the full year 2022, new completions reached a new historic high for the Indian office markets at 58.27 million sq. ft. Over the next 12 months, around 53-58 million sq. ft is lined up with average pre-commitment levels of 14-17%. For assets owned by institutional landlords which are 30% of the supply pipeline, pre-commitment rates stand at 22-25%, according to JLL.

Supply in Q4 2022 was at 14.83 million sq ft; up by 23.8% quarter-on-quarter. Completions in Q4 2022 were headlined by Hyderabad and Bengaluru which combined for a 60.5% share of the quarterly supply additions. Just around 23% of the new supply infusion was pre-committed, highlighting that occupier decision-making turned slightly bearish in the last 3-4 months. A significant part of this came from new completions in Chennai, where 55% of the supply was pre-committed and Mumbai with a 28% pre-commitment rate. and Hyderabad and Bengaluru saw similar pre-commitment rates of 21% each, respectively while Delhi-NCR just had 13% pre-commitment levels.