As ‘work from home’ fades, demand for office properties rises

The worst seems to be over, when it comes to demand for office properties in India. Its demand across the top six cities has gone up by two per cent year-on-year (YoY) and now stands at 14.6 million sq.ft., if the latest report from the Nasdaq-listed Colliers are pointers. The global economic headwinds notwithstanding, the demand for office property grew on a sequential basis, indicating a continued occupier confidence, much to the delight of developers and property dealers. As a result, the second quarter (Q2) of 2023 recorded 14.6 mn sq.ft. of gross absorption across the six cities, rising by two per cent YoY, making a strong comeback after a cautious first quarter, the report said. Bengaluru and Chennai led the demand during Q2 2023, accounting for about half of the total leasing across the six cities. Interestingly, after witnessing lacklustre demand for the last few quarters, Chennai saw a three-fold rise in demand during Q2 2023 led by enhanced occupier activity.

During this time, the engineering and manufacturing sector gained a significant share at 21 per cent, while technology sector continued to dominate at 26 per cent share. Leasing by engineering and manufacturing firms went up three-fold YoY. Again Bengaluru and Chennai led overall leasing transactions at 23 per cent share each. What has been also encouraging is the fact that new supply has headed northward. It has gone up 32 per cent at 12.4 mn sq ft., pushing vacancy levels up by 40 bps. In this case also, Bengaluru witnessed significant new completions, contributing to 31 per cent of the total new supply, followed by Hyderabad with a 24 per cent share. However, amidst robust supply, vacancy levels surged by 40 basis points (bps) on a YoY basis at 17.4 per cent, as occupiers continue to consolidate their real estate portfolios to bring in cost and space efficiency while they adopt and build hybrid work models.

Taken under any yardstick, the future looks promising as well. As the market stabilizes further with improved demand towards the latter part of the year, developers are likely to expedite their project completions. Amidst improving demand conditions supported by relevant market supply, vacancy levels are expected to remain range-bound and stabilize, with a potential upside on rentals by the end of the year. No doubt the current situation signals optimism along with growth in domestic consumption and investment, which effectively translates into demand for office space. Flex spaces continue to gain larger ground, as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is starting on a promising note with resurgence in demand across geographies. That’s what realty experts feel. The message is loud and clear--the trend is moving away from ‘work from home’ to a hybrid model. And that is music for the ears of all those into the related sectors.