Bengaluru dominates office space absorption, Chennai surprises with 2x growth: Colliers India Report

India's office leasing market reached record-breaking levels in Q4 2023, with 58.2 million sq ft of gross absorption. Bengaluru dominated office space absorption. Tech's contribution shrank, but demand remained strong due to diversification

Shivangini
Updated24 Dec 2023, 02:08 PM IST
Bengaluru, Chennai and Hyderabad registered the best performance since the COVID-19 pandemic. photo by priyanka parashar
Bengaluru, Chennai and Hyderabad registered the best performance since the COVID-19 pandemic. photo by priyanka parashar

The fourth quarter of 2023 has propelled India's office leasing market to unprecedented heights, culminating in a record-breaking 58.2 million square feet of gross absorption, led by the peninsular India and Delhi NCR's office space demand. With over one-fourth share, Bengaluru dominated office space absorption, but Chennai surprised everyone with over 2x growth and a record 10.5 million sq ft uptake, landing it in the top 3 for the first time, according to a report by Colliers India.

Additionally, Bengaluru, Chennai, and Hyderabad registered the best performance since the COVID-19 pandemic.

"Indian commercial real estate and office markets will continue to witness steady interest from domestic as well as foreign-origin occupiers. Increased preference for a combination of core and flex real estate space, heightened activity in tier II markets, and next-gen offices with more sustainable elements will be the key themes for office markets in 2024.” said, Arpit Mehrotra, Managing Director, Head of Office services, Colliers India.

Which sectors drove the demand?

Meanwhile, tech's contribution shrank by half, from 50 per cent in 2020 to 25 per cent in 2023, but overall demand held strong thanks to diversification. The sectoral contributions from BFSI and Engineering and manufacturing sectors especially have almost doubled, increasing from 10-12 per cent in 2020 to around 16-20 per cent in 2023. Interestingly, in 2023, leasing by Engineering and Manufacturing players (26 per cent share) surpassed the demand emancipating from Technology firms (22 per cent share) in the tech hub of Bengaluru.

 

Gross absorption: does not include lease renewals, pre-commitments and deals where only a letter of Intent has been signed. Top 6 cities include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune

Demand from Flex operators remained unabated; at 8.7 mn sq ft, the flex spaces uptake in 2023 was 24 per cent higher than in 2022. Flex penetration in the Indian office market is expected to rise further in 2024, as developers are likely to adopt a core plus flex strategy for decision-making.

Almost 40 per cent of the large deals in the top six cities have come from GCCs, particularly from the technology and BFSI sectors. Global Capability Centres (GCCs) typically have large space requirements, and they too resumed their expansionary activities with greater fervour towards the second half of 2023, especially in the fourth quarter.

“Large sizes of 100,000 sq ft or more have contributed to almost 50% of the overall office space demand in India. Interestingly, more than half of the large GCC deals achieved closure in the last quarter of 2023, indicating renewed momentum in the GCC activity of the country. A large pool of talent, cost-effective rentals, adequate Grade A developments, and favourable office market ecosystem will continue to uphold India’s vantage positioning from a capability centre perspective. Moreover, healthy demand from domestic firms across technology, BFSI, manufacturing, healthcare, and flex spaces will result in equally strong demand for office spaces in 2024," said, Vimal Nadar, Senior Director and Head of Research, at Colliers India.

 

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First Published:24 Dec 2023, 02:08 PM IST
HomeIndustryBengaluru dominates office space absorption, Chennai surprises with 2x growth: Colliers India Report

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