Net absorption in office space touch 9.86 million sq ft in Q2 FY23: Report

 October 2022

Delhi NCR and Bengaluru are the two biggest office markets in terms of Jan-Sep 2022 gross leasing activity followed by Mumbai. These three markets account for over two-thirds share of occupier activity in the first nine months of the 2022 calendar year.

NEW DELHI: The net absorption for India’s office space for the July-September quarter was up by 11% quarter-on-quarter (Q-o-Q) and recorded at 9.86 million sq. ft, according to a recent report by JLL.

The net absorption for the first nine months of 2022 (Jan-Sep 2022) stood at a three-year high of 30.3 million sq ft, backed by strong supply completions with healthy pre-commitments.

Among the four metros, Hyderabad led the way with a 31% share of net absorption, with Mumbai pushing Bengaluru to the third spot, followed by Delhi NCR. These four cities combined for an 83% share of net absorption in the quarter.

Bengaluru leads in terms of 9-month net absorption levels, followed by Hyderabad and Mumbai. All the top seven cities have seen the nine-month net absorption for 2022 at much higher levels compared to the corresponding period of 2021.

On a Pan-India basis, net absorption is also up by 107% year-on-year (Y-o-Y) for the nine-month period.

Gross leasing for the period between Jan-September 2022 is up 1.9X Y-o-Y. The nine-month gross leasing activity is higher by 88% over the same period of 2021 and 13% over the same period of 2020, marking the first full 9 months. Mumbai and Delhi NCR led the gross leasing numbers for Q3 2022 accounting for 26% and 23%, respectively.

Delhi NCR and Bengaluru are the two biggest office markets in terms of Jan-Sep 2022 gross leasing activity followed by Mumbai. These three markets account for over two-thirds share of occupier activity in the first nine months of the 2022 calendar year.

“Tech continues to remain the dominant occupier segment accounting for 27% of market share, although down from 33% Q-o-Q. Although the total space leased by Flex operators is down 45% Q-o-Q, this segment has a market share of 14%. Aided by a strong return to office, the BFSI segment has seen the share of gross leasing go up to 16% this quarter compared to 10% in the last quarter,” said Rahul Arora, head, Office Leasing Advisory, India, JLL.

Enterprises leased ~30,000 seats in flex, down by around 22% from the previous quarter. The nine-month flex seat take-up is already at an all-time peak of ~95,000 seats, with the year likely to end more than 120,000 seats. The annual flex seat take-up in 2022 alone is likely to equal or surpass the combined total of the pre-COVID years of 2018 and 2019 as well as the past two years 2020 and 2021.

“Over the next 12 months, around 50-55 million sq. ft is lined up with average pre-commitment levels of 11-12%. For assets owned by institutional landlords, pre-commitment rates stand at 24% with their share being 30% of the upcoming supply. Space requirements currently active are around 36-38 million sq ft, the same over the past one year, indicating the robustness of demand pipeline,” Samantak Das, chief economist, and head research and REIS, India, JLL.

New completions were recorded at 11.97 million sq. ft in Q3 2022, up by 8% Q-o-Q. For Jan-September 2022, new completions stand at 43.4 million sq. ft, higher than the corresponding periods for the last three years. Completions in Q3 2022 were headlined by Hyderabad and Delhi NCR which combined for a 60% share of the quarterly supply additions. Almost 46% of the new supply infusion was pre-committed in Q3 2022.

A significant part of this came from new completions in Hyderabad, where 57% of the quarterly supply was pre-committed. Bengaluru saw an 89% pre-commitment rate in its new completions. Chennai and Delhi NCR also saw pre-commitment rates of 55% and 34%, respectively in their new completions.

The vacancy has remained at 16.0%, stable q-o-q, and expected to remain sticky within this range of 16-17%, according to the report.