Office space demand declines to 6-qtr low

Net leasing of office space fell 34 per cent in January-March quarter (Q4) of FY 2022-23 to 7.63 million square feet across seven major cities as corporates were cautious on expansion amid global uncertainties, according to JLL India.

The net leasing fell to the lowest in six quarters, as per the data by real estate consultant JLL India. Chennai, Hyderabad, Mumbai and Pune saw a decline in demand, while office space absorption rose in Delhi-NCR, Bengaluru and Kolkata.

Net leasing stood at 11.55 million square feet in the year-ago period across seven cities - Delhi-NCR, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Pune. JLL India attributed the fall in net leasing or absorption of office space to reduced expansion activity, delayed space plans and a hybrid workplace strategy that is still evolving.

"Companies were consolidating and relocating to save on real estate costs, while there were fewer pre-commitments in new completions during the quarter. This reflects the challenges faced by the corporate world amid global headwinds and an uncertain business environment," it explained. Net absorption is calculated as the new floor space occupied less floor space vacated. Floor space that is pre-committed is not considered to be absorbed until it is physically occupied.

As per the data, Bengaluru witnessed a 14 per cent increase in net office leasing to 1.91 million square feet in January-March 2023 from 1.67 million square feet in the year-ago period. Net office leasing in Delhi-NCR rose 47 per cent to 1.96 million square feet from 1.34 million square feet. Kolkata saw a more than two-fold jump in leasing to 0.46 million square feet from 0.18 million square feet.

However, the office demand fell maximum in Hyderabad by 85 per cent to 0.52 million square feet from 3.42 million square feet. In Chennai, the net office leasing declined 50 per cent to 0.60 million square feet from 1.21 million square feet. Net leasing of office space in Mumbai dipped 39 per cent to 0.88 million square feet from 1.44 million square feet.

In Pune, the net absorption of office space fell 44 per cent to 1.28 million square feet in January-March 2023 from 2.30 million square feet in the corresponding period of the previous year. JLL noted that the Delhi-NCR remained the top city in terms of net absorption for the second quarter in a row, followed closely by Bengaluru. Pune saw a significant improvement in net absorption, jumping to third place with a 16.8 per cent share. There was also a big increase in Kolkata's quarterly net absorption, which reached a five-quarter high.

"Although there has been a slowdown in the tech industry, we anticipate that the demand for office space will remain stable, reaching similar levels as in 2022, with an estimated range of 36-40 million square feet. However, we will have a clearer picture of the direction of office demand after another quarter," said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.