Engineering & manufacturing firms sees three-fold increase in leasing

06 Jul 2023 CW Team

According to a report by Colliers, engineering and manufacturing firms have seen a three-fold increase in demand year-on-year, with occupiers opting for larger office spaces in top markets. Bengaluru and Chennai have emerged as the preferred locations for office expansions by engineering and manufacturing companies.

Peush Jain, Managing Director of Office Services, India, at Colliers, stated, "Engineering, manufacturing, BFSI, and flex spaces have experienced a strong rise in leasing, with a 71 per cent increase year-on-year in Q2 2023. This indicates optimism and growth in domestic consumption and investment, resulting in a demand for office space."

Although the technology sector's share has continued to decline from 40 per cent in Q2 2022 to 26 per cent in Q2 2023 due to weak demand, it remains dominant.

Companies are integrating flexible spaces into their real estate portfolios as a core strategy due to the flexibility, agility, and cost-effectiveness they offer. Leasing of flex space increased by 58 per cent year-on-year during the quarter as occupiers embraced flex space as a long-term strategy.

"Fex spaces are gaining more ground as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is beginning on a promising note with a resurgence in demand across different regions," mentioned Jain.

In the April-June quarter, the Indian office market recorded a gross absorption of 14.6 million square feet across the top six cities, marking a 2 per cent year-on-year increase and a strong recovery after a cautious first quarter. Despite global economic challenges, demand continued to grow sequentially, reflecting ongoing occupier confidence.

Bengaluru and Chennai led the demand in Q2 2023, accounting for approximately half of the total leasing across the top six cities. Chennai witnessed a three-fold increase in demand during this quarter after experiencing lackluster demand in previous quarters, driven by increased occupier activity.

"Q2 2023 witnessed a significant 32 per cent year-on-year rise in new supply as demand continued to improve. As the market further stabilises with improved demand in the latter part of the year, developers are expected to accelerate project completions. With improving demand conditions and appropriate market supply, vacancy levels are anticipated to remain stable, with potential rental growth by the end of the year," said Vimal Nadar, Senior Director and Head of Research at Colliers India.

In Q2 2023, new supply across the top six cities increased by 32 per cent year-on-year, reaching 12.4 million square feet. Bengaluru saw substantial new completions, accounting for 31 per cent of the total new supply, followed by Hyderabad with a 24 per cent share.

However, despite robust supply, vacancy levels increased by 40 basis points (bps) on a year-on-year basis, reaching 17.4 per cent. Occupiers continue to consolidate their real estate portfolios to achieve cost and space efficiency while adopting and developing hybrid work models, as mentioned in the report.

The demand landscape in the Indian office space is experiencing a shift, with engineering, manufacturing, and flexible office spaces witnessing a steady rise in leasing compared to the IT/ITes sector.According to a report by Colliers, engineering and manufacturing firms have seen a three-fold increase in demand year-on-year, with occupiers opting for larger office spaces in top markets. Bengaluru and Chennai have emerged as the preferred locations for office expansions by engineering and manufacturing companies.Peush Jain, Managing Director of Office Services, India, at Colliers, stated, Engineering, manufacturing, BFSI, and flex spaces have experienced a strong rise in leasing, with a 71 per cent increase year-on-year in Q2 2023. This indicates optimism and growth in domestic consumption and investment, resulting in a demand for office space.Although the technology sector's share has continued to decline from 40 per cent in Q2 2022 to 26 per cent in Q2 2023 due to weak demand, it remains dominant.Companies are integrating flexible spaces into their real estate portfolios as a core strategy due to the flexibility, agility, and cost-effectiveness they offer. Leasing of flex space increased by 58 per cent year-on-year during the quarter as occupiers embraced flex space as a long-term strategy.Fex spaces are gaining more ground as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is beginning on a promising note with a resurgence in demand across different regions, mentioned Jain.In the April-June quarter, the Indian office market recorded a gross absorption of 14.6 million square feet across the top six cities, marking a 2 per cent year-on-year increase and a strong recovery after a cautious first quarter. Despite global economic challenges, demand continued to grow sequentially, reflecting ongoing occupier confidence.Bengaluru and Chennai led the demand in Q2 2023, accounting for approximately half of the total leasing across the top six cities. Chennai witnessed a three-fold increase in demand during this quarter after experiencing lackluster demand in previous quarters, driven by increased occupier activity.Q2 2023 witnessed a significant 32 per cent year-on-year rise in new supply as demand continued to improve. As the market further stabilises with improved demand in the latter part of the year, developers are expected to accelerate project completions. With improving demand conditions and appropriate market supply, vacancy levels are anticipated to remain stable, with potential rental growth by the end of the year, said Vimal Nadar, Senior Director and Head of Research at Colliers India.In Q2 2023, new supply across the top six cities increased by 32 per cent year-on-year, reaching 12.4 million square feet. Bengaluru saw substantial new completions, accounting for 31 per cent of the total new supply, followed by Hyderabad with a 24 per cent share.However, despite robust supply, vacancy levels increased by 40 basis points (bps) on a year-on-year basis, reaching 17.4 per cent. Occupiers continue to consolidate their real estate portfolios to achieve cost and space efficiency while adopting and developing hybrid work models, as mentioned in the report.