2022 office demand reaches tantalisingly close to historic peak, crosses 54 mn. Sqft. absorption: SAVILLS INDIA

Office space absorption across India’s six major cities stood at 54.8 mn sqft, recording a 48.5% increase in 2022. This was very close to the historic peak of 55.7 mn sqft, recorded in 2019, falling short by less than a million sq.ft. Bengaluru, the longstanding flag-bearer of office markets, recorded its all-time peak at 17.3 mn sqft; and so did NCR and Chennai at 11.3 mn sq.ft and 7.3 mn sqft respectively. New supply rose by 45.1% at 53.4 mn sqft when compared to 2021, as per data released by International real estate advisory firm Savills India.?

However, there are signs of caution in the mix: Despite the first half of 2022 recording an all-time-high H-1 demand, the second half slowed, as if picking up signals of global slowdown. H-2 performance leaves observers wondering if 2022 would have broken all previous records, but for the deceleration in the last quarter.?

Key Data Points?

• All cities have registered increase in demand as compared to 2021, with Pune and Chennai witnessing the highest annual growth at 119% and 82% respectively
• Of the 54.8 mn sqft of gross absorption at the India level, Bengaluru, Delhi-NCR and Chennai had a cumulative share of 66%
• Incidentally, all the three cities Bengaluru, Delhi-NCR and Chennai registered all time high leasing activity of 17.3 mn sqft, 11.3 mn sqft and 7.3 mn sqft respectively.?
• While this translates to 4% growth for Delhi-NCR as compared to pre-pandemic times (2019), Bengaluru and Chennai witnessed 11% and 12% growth respectively
• Bengaluru and Delhi-NCR continue to be the top 2 commercial real estate markets in terms of yearly gross absorption. Chennai, however rose from the fifth position among top-6 in 2021, to take the third place
• Mumbai remains at the fourth place, despite registering a significant jump of 46% Y-o-Y in gross absorption
• The year 2022 has been a story of 2 halves with H1 2022 outperforming H2 considerably. Apprehensions with respect to global growth prospects have put real estate decision making on hold, especially in the last quarter of the year.

Half -Yearly Gross Absorption Trend at India Level

“Although the pandemic had slowed down the activity through 2020 and 2021, a strong rebound in 2022 has shown the inherent strength of demand in India. The bounce-back further establishes two things: the flex spaces proposition is on solid ground, and secondly, office occupancies have returned resoundingly, even for the tech sector. These and several other factors speak to the long-term potential of the office market in India. While the need to remain vigilant is unquestioned, the policy ecosystem and industry actions will hopefully create the right path in 2023,” said Anurag Mathur, CEO, Savills India.

SECTORAL SPLIT: Coworking Picks up again, along with IT & BFSI

IT continues to drive the office market with 38.9% share of total leasing in 2022. With increased adoption of hybrid work, flexible workspaces contribution improved from 12.7% in 2021 to 14.1%in 2022. Banking, Financial Services and Insurance (BFSI) also maintained its pre-eminence at 12.2% share. Engineering and manufacturing, another important segment of demand registered approx. 8.2% share of demand in 2022.?

“The force of technology sector is now a well-established fact in Indian office markets. The big performance, however, was delivered by flexible spaces, which had nearly collapsed having taken a frontal hit during the pandemic. All the same, it needs to be remembered that the story of 2022 is that of two contrasting halves. This necessitates a deeper understanding of the probable impact of global economic events in near term.” said?Arvind Nandan, Managing Director, Research and Consulting, Savills India.

SUPPLY, VACANCY & RENTS

Strong supply infusion was the theme across all cities. Of the 53.4 mn sqft of new completions across the 6 major markets, Bengaluru and Hyderabad alone accounted for more than half of the supply addition. While the all-India stock of Grade-A office space stood at over 700 mn sqft, Hyderabad breached the 100 mn sqft mark for the first time in 2022. Hyderabad, with supply infusion of 16.5 mn sqft in 2022, witnessed an outstanding YoY growth of 92%.

Average vacancy level has increased marginally from 18.3% in 2021 to 18.9% in 2022 on account of portfolio reallocations. This has resulted in rentals remaining largely stable.

The rental value change across micro-markets varied within each city and even within micro markets. While rentals remained stable in low demand micro markets, a developer-oriented market has resulted in strong yearly increase in other localities.

*Disclaimer*

The numbers represent the market as on 26th Dec 2022. Minor modifications to these for the eventual year end numbers, though unlikely, should not be completely ruled out.

About Savills India:

Savills is a premier professional international property consulting ?rm headquartered in London with a network of more than 39,000 people in over 700 offices across the Americas, Europe, Asia Pacific, Africa and the Middle East. Savills India is a group company of Savills Plc. with full-service o?ces in Bengaluru, Mumbai, Delhi NCR, Chennai, Pune, Hyderabad and Ahmedabad. Savills serves Occupiers, Investors, and Developers of real estate with a host of services including leasing, advisory & transactions, project management, capital markets, valuations and research & consulting. These services cover various asset classes such as commercial, industrial, warehouses and logistics, data centres and residential. For further information, please visit?https://www.savills.in/