Vacancy levels in top 6 cities drop, indicating recovery in commercial office markets: Report

January 4, 2023

Vacancy levels across the top 6 cities dropped by 190 basis points YoY to 16.6 per cent in 2022, compared to 18.5 per cent in 2021, indicating strong recovery and stability in commercial office markets, according to a report.

According to a Colliers report, vacancy levels have decreased in each successive quarter of 2022 as leasing momentum has remained positive, with total leasing for the year totalling 50.3 million square feet. However, there was some weakness in market activity in Q4 2022 as occupiers took a cautious stance amidst global recessionary conditions. As a result, gross absorption in Q4 2022 was about 21 per cent lower than the average seen during Q1-Q3 2022.

“It is encouraging to see the office market stabilizing this year, with vacancies dropping after a gap of two years. Interestingly, BFSI companies have expanded rapidly this year, with Indian banks and global financial institutions leasing large office spaces. Leasing by BFSI almost doubled since last year, and Mumbai witnessed the highest BFSI leasing at 40 per cent share, as financial institutions made their comeback,” according to Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.

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Leasing across sector 

Data from the report shows that flex space operators leased 7 million square feet of space in 2022, the most in any year, accounting for about 14 per cent of total leasing. Since last year, flex operators have been seen leasing offices in Grade A spaces, led by higher demand from large enterprises. Similarly, there was an increase in the office space taken up by BFSI—14 per cent; consulting—14 per cent, and engineering firms—10 per cent. Leasing by these three sectors has doubled since last year, and also surpassed pre-pandemic times.

Bengaluru and Pune continue to be popular locations for flex space operators, accounting for more than 50 per cent of the year’s flex space take-up.

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The gross absorption across the top 6 cities reached 50.3 million square feet. Bengaluru recorded 16.2 million square feet, Hyderabad saw an increase of 10 per cent YoY to 6.5 million square feet, and Chennai saw a 64 per cent YoY increase to 4.6 million square feet.

“2023 would be a decisive year for office usage patterns and shall continue to be a mix with hybrid usage. As firms are adopting a cautionary stance for 2023, it is the right time to start preparing for a future generation of workforce and focusing to create progressive, flexible workspaces having a holistic outlook towards ESG,” said Peush Jain, Managing Director, Office Services, Colliers India. 

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