Office market activity in India softens in first quarter of 2023

V Nagarajan

India’s office vacancy levels remained rangebound during Q1 of 2023, in line with the Q4 of 2022 levels, pointing to a resilient commercial office market. During Q1of 2023, while the office market witnessed softer demand, it had little impact on the vacancy levels.

While 2022 saw a robust demand with occupiers going ahead with their expansion plans after a 2-year long wait-and-watch scenario, market activity softened in Q1 of 2023 amidst the looming recessionary concerns and economic headwinds, according to Colliers survey.

New supply largely treaded alongside demand in most of the markets, resulting in stable vacancy levels. When compared with the trends a year-ago, office vacancy levels dropped by 210 basis points with demand making a massive comeback.

Though the leasing activity in Q1 of 2023, witnessed a drop of 19 per cent YoY at 10.1 million sq ft, the market is likely to pick up in the latter part of the year, driven by strong growth fundamentals. While the office market has a strong supply pipeline, developers will be more careful and cautious on how the demand pans out going ahead, thereby avoiding speculative supply.

“At a time when occupiers are delaying decision making on leasing office spaces amidst continued economic uncertainties, the office market witnesses signs of stability in Q1 of 2023 with the vacancy levels remaining intact at 16.4 per cent compared to the previous quarter,,” said Peush Jain, Managing Director, Office services, India, Colliers.

“Going ahead, we expect demand and supply to move in unison, keeping the vacancy and rental levels rangebound. The latter part of 2023 may see signs of strong recovery provided the recessionary concerns lessen in the beginning of the second half of 2023,” Peush Jain added.

Vacancy levels in Delhi NCR, Hyderabad and Pune slightly rise on sequential basis. Vacancy levels in half of the top six cities across India during Q1 of 2023 remained in line with Q4 of 2022 levels indicating a guarded yet strategic stance across markets.

Hyderabad, Delhi NCR and Pune witnessed a slight rise in vacancy levels owing to a significant supply infusion in the respective cities during 2022. Vacancy in Mumbai which dropped to 15.3 per cent by the end of 2022, continued to remain stable in Q1 of 2023 due to limited availability of new supply paired with steady demand in the city.

Leasing by technology companies and flex space operators almost neck-to-neck in Q1 of 2023.

During Q1 of 2023, leasing by flex space operators inched closer to that of technology companies for the first time ever. Flex occupiers leased 2.1 million sq feet of space during Q1 of 2023, accounting for 20 per cent, few paces behind the technology sector’s share at 22 per cent. Together both the sectors accounted for nearly 42 per cent of the total leasing across top 6 cities.

Occupiers’ interest in flex spaces remain unabated as they continue to blend their conventional real estate portfolio in a bid to control costs while providing convenient ways to work for their employees.

Large technology occupiers have also been leasing spaces in flex spaces due to their added benefits such as flexible lease terms, lower capex, and modern workplace designs. This coupled with ongoing recessionary concerns and layoffs in technology sector has led to a relative pushback in conventional leasing by these occupiers.

Occupiers’ desire to make the office an attractive destination and improve employee experience would continue to drive the demand for high-quality spaces, says CBRE survey on outlook for office space in 2023.

I am planning to invest in LLP which will undertake housing development in India. Does it require RBI permission? Please clarify. Santosh Rane, Sharjah.

You can become a partner of LLP on non-repatriation basis subject to certain conditions. If you wish to invest in capital and repatriate, then RBI’s permission would be required, in view of the provisions of the Foreign Exchange Management (Investment in Firm or Proprietary concern in India).

I bought land from a developer but found out that it was approved by Panchayat authorities. I understand that this approval may not ensure conveyance of title? Can I initiate legal action against the developer? Sreekumar, Dubai.

Yes. Generally, Panchayat approved plots are not safe for investment and it is always better to invest in plots approved by the Directorate of Town and Country Planning (DTCP). This is because they have access to the government’s land acquisition areas and approval is given after due diligence. You can initiate legal action provided he has not disclosed this fact in his contract document.