Office space leasing may fall 30% this year

Leasing of office space across six major cities may fall by 25-30 per cent this calendar year to 35-38 million square feet on subdued demand, according to Colliers India and FICCI.

Property consultant Colliers India and industry body FICCI released a report 'Emerging Trends and Opportunities in Office Sector - 2023'. Gross office space leasing rose to 50.3 million square feet in 2022 across six cities from 32.9 million square feet in the previous year on better demand. These six cities are Delhi-NCR, Mumbai, Bengaluru, Hyderabad, Chennai and Pune.

The report said that in an optimistic scenario, India's office sector is likely to see about 35-38 million square feet of gross leasing in 2023. The consultant expects that the economic headwinds would ease and not cause a significant dent to overall occupiers' confidence. It expects a significant increase in leasing in the latter half of this year with corporates likely to close leasing decisions that were put on hold temporarily.

On the contrary, the Colliers-FICCI report pointed out that in a pessimistic scenario, the impact of economic headwinds would be prolonged, delaying a recovery in demand. In the optimistic scenario, Colliers expects 2023 leasing to 30-33 million square feet at a gross level. The report suggested that while the office market in 2023 looks uncertain currently, it might bounce back with relative ease despite the global headwinds and other externalities.

Leasing activity is likely to pick up in the second half of the year, led by global capability centres, BFSI companies and startups with sound business models, the report said.

"The growth in traditional and flex spaces has been robust in 2022 as occupiers were more upbeat about leasing space and expanding their footprint. In 2023, despite the office market being riddled with uncertainty, the office sector is poised for growth, provided the economic environment remains bright," Peush Jain, Managing Director (Office Services) at Colliers India, said.

"We do not expect the leasing numbers to fall below the peak pandemic levels of leasing even in a pessimistic scenario," Jain said. The key fundamentals of the office market will follow the trajectory of demand and supply to maintain a balance in the market, he added.

During 2023, the report said that a relative slowdown is expected in overall traction especially from the tech sector due to the ongoing layoffs triggered by slower external demand. However, leasing by flex, engineering and BFSI companies are expected to remain resilient, it added.

"Hybrid working has been a game-changer in the future of work. To accommodate employees' changing needs, occupiers are likely to switch gears towards adoption of hybrid model. This would benefit companies through optimal space utilisation," Vimal Nadar, Senior Director and Head of Research at Colliers India, said.