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The Indian office sector is poised for a robust closure in 2023, with an anticipated gross leasing of 40–45 million square feet across the top six markets, surpassing earlier projections from March. Colliers' latest report reveals that domestic office demand remains resilient, supported by a promising economic outlook despite challenges from external factors. Globally, economic forecasts for 2023 have moderately improved, driven by slight enhancements in the US, UK, and Europe, consequently revitalizing external sectoral demand and influencing the Indian office landscape.
The year commenced on a cautious note, with a gross absorption of 10.1 million square feet in Q1. However, the subsequent quarter witnessed a swift rebound, marking a growth of approximately 50 percent QoQ with 14.6 million square feet of leasing activity. This resurgence can be attributed to improved business sentiment across various demand segments and a discernible upturn in the domestic economy. It's important to note that gross absorption figures exclude lease renewals, pre-commitments, and agreements where only a letter of intent has been exchanged.
Amid the dynamic shifts in the office real estate market, tech occupiers, predominantly rooted in the US, EU, and UK, continue to significantly influence office space leasing in India. Simultaneously, a substantial surge in demand has been noted among domestic occupiers, particularly within the engineering and manufacturing sectors, during H1 2023. Notably, since 2021, domestic demand has surged ahead of global occupiers. In H1 2023, the technology sector took the lead in office space demand, capturing a 24 percent share, closely followed by the flex space and engineering and manufacturing sectors at 18 percent and 17 percent, respectively.
This demand trend underscores the increasing significance of these sectors, which have exhibited consistent growth since 2020. The optimism observed on the demand side aligns with a tangible positive shift on the supply side. Indian developers exhibit heightened confidence, buoyed by improved market sentiments. H1 2023 witnessed the introduction of 22 million square feet of new supply across the top six cities, showcasing a 31 percent rise in Q2 compared to Q1. Looking ahead, Colliers forecasts a 10–20 percent growth in supply during H2 2023 in comparison to H2 2022.
This upward trajectory highlights developers' responsiveness to evolving market dynamics and the escalating need for premium office spaces. 2023 is poised to witness a robust supply aligning with projected space uptake in major office markets, thus maintaining vacancy levels within a range that might lead to potential rental escalation. While the overall office market is expected to achieve balanced growth in the latter half of the year, specific micro-markets are likely to experience heightened activity, shaping a dynamic landscape for the foreseeable future.
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