India office space: stable growth in 2023

The Indian office space market has displayed remarkable resilience and stability in the year-to-date 2023 (YTD 2023), as it continues to navigate through global economic uncertainties. With 38 million square feet of gross absorption in office spaces, nearly matching 2022 levels, India's commercial real estate sector demonstrates robust momentum. In this dynamic landscape, cities in the southern region, notably Bengaluru, and the National Capital Region (NCR) in Delhi, have taken the lead, accounting for about half of the total office space demand. Diversification is also a notable trend, with various sectors contributing significantly to the demand, reflecting a broad-based appetite for office spaces. Domestic players, despite global volatility, are playing a pivotal role in driving office demand, with their influence steadily increasing in recent years. Additionally, vacancy levels and rental rates have remained stable, thanks to a balanced supply and demand dynamic. This report provides insights into the key trends shaping India's office space market in YTD 2023. South cities contribute 60 per cent of 38m sq ft office demand in 2023 YTD In the year-to-date 2023, there has been a substantial demand for office spaces, with a total gross absorption of 38 million square feet, almost matching the figures from 2022. Leading this demand are Bengaluru and Delhi NCR, which together make up about 50% of the total office space demand in India. The third quarter alone recorded 13.2 million square feet of leasing activity across the top six cities, slightly exceeding the quarterly average since 2022. Diverse sectors contribute significantly to office space demand The demand for office spaces in 2023 is characterised by diversification, with the technology sector leading at a 25% share in year-to-date leasing. Flex spaces, Engineering and manufacturing, and BFSI sectors have also seen substantial contributions, each accounting for 15-20% of the demand. This diversification reflects a shift towards broad-based demand across various industries. Domestic players drive office demand amid global volatility In contrast to the past, domestic companies are now significant players in India's office space market, accounting for nearly half of the office space take-up in 2023. This trend has emerged despite global economic uncertainties. Companies in sectors such as Engineering and manufacturing, BFSI, Pharma and healthcare, and flex spaces have increased their office space requirements across India's top six cities. Steady supply and demand keep vacancy and rentals stable The office space market has maintained stability in terms of vacancy rates and rental prices. New supply across the top six cities decreased by 1% year-on-year in 2023. Hyderabad and Bengaluru witnessed significant new completions, contributing to the overall supply. Despite the steady influx of new supply and demand, vacancy levels have remained in the range of 15-20%, indicating a balanced market. The return-to-office mandates, alongside the preference for hybrid working arrangements, are expected to support near-term office space demand and keep rental rates firm in key micro markets.