Bengaluru saw highest office leasing of 3.5 million sq ft in Q2 2023; overall leasing drops
Bengaluru saw highest office leasing of 3.5 million sq ft in Q2 2023; overall leasing drops
During the April-June 2023 quarter, Bengaluru witnessed the highest office leasing activity among the nine major cities in India, with a total of 3.5 million square feet (msf) leased. However, office leasing across all nine cities experienced an overall 25 percent decline year-on-year, reaching 13.9 msf during the quarter. These figures are based on a report by real estate consultant CBRE. The cities covered in the report include Delhi-NCR, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad, Ahmedabad, and Kochi.
On a sequential basis, the CBRE India Office Figures Q2 2023 report highlighted a 12 percent increase in office leasing activity in the second quarter of 2023 compared to the first quarter of the same year. This indicates a positive growth trend in office leasing during the quarter.
Bengaluru’s strong office leasing performance reflects its position as a leading commercial hub in India. However, the overall decline in office leasing across the nine major cities suggests a challenging market environment during the quarter. Various factors, such as the prevailing economic conditions and global uncertainties, may have contributed to the decline.
According to the CBRE India Office Figures Q2 2023 report, office leasing activity in India witnessed a 12 percent increase in the second quarter of 2023 compared to the first quarter of the same year. In Bengaluru, the absorption of office spaces was driven by small-sized deals, specifically those below 50,000 square feet. Non-SEZ developments played a significant role in both supply and absorption, accounting for 68 percent and 54 percent shares, respectively.
During the quarter, technology companies demonstrated increased activity, representing 29 percent of the leasing market. Flexible space operators accounted for 18 percent, followed by engineering and manufacturing firms and BFSI (Banking, Financial Services, and Insurance) corporates, both accounting for 17 percent.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa at CBRE, expressed the belief that domestic firms would continue to have a strong presence in the leasing market throughout the year. Additionally, their focus on the return to offices (RTO) is expected to boost their operations.
These insights highlight the positive momentum in the office leasing market, with an increase in activity and the prominence of certain sectors like technology and flexible space operators. The report also emphasizes the important role of non-SEZ developments in meeting the demand for office spaces. The statement by Anshuman Magazine underlines the expectation of continued strength from domestic firms and the potential impact of the return to offices on their operations.
In the April-June 2023 period, the total office space supply reached 12.4 million square feet, reflecting a 6 percent increase quarter-on-quarter. The cities of Hyderabad, Bengaluru, and Chennai were the leaders in supply addition during this quarter, accounting for a combined share of 84 percent.
In terms of the types of developments, the non-SEZ (Special Economic Zone) segment continued to dominate the market, accounting for a larger share of the new completions in April-June 2023. The SEZ supply accounted for 24 percent of the new developments, compared to 11 percent in the previous quarter (Q2 2023).
The demand for office spaces in Q2 2023 was driven by small-sized (less than 10,000 square feet) to medium-sized (10,000 – 50,000 square feet) transactions, which accounted for 85 percent of the overall office space take-up during this period.
These figures indicate the supply-side dynamics in the office space market, with Hyderabad, Bengaluru, and Chennai leading in supply additions. The dominance of the non-SEZ segment and the prevalence of small to medium-sized transactions reflect the preferences and requirements of tenants during this quarter.
In the second quarter of 2023, the share of medium-sized deals (between 10,000 and 100,000 square feet) in the office space leasing market increased to 54 percent. This was a rise from 48 percent in the previous quarter. Meanwhile, the share of large-sized deals (greater than 100,000 square feet) remained steady at 6 percent, similar to the first quarter of 2023.
The overall demand for office space across the nine major cities of Delhi-NCR, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad, Ahmedabad, and Kochi experienced a decline of 12 percent during the January-June period. The total leasing activity in these cities dropped from 30 million square feet in the corresponding period of the previous year to 26.4 million square feet. This decline reflects a slowdown in the demand for office spaces in these cities during that specific timeframe.
Within this period, Delhi-NCR specifically witnessed a notable decline of 54 percent in gross leasing transactions for office spaces. The reasons behind this decline can be attributed to various factors, including global economic uncertainties that may have impacted business activities and decision-making processes in the region. These uncertainties can affect businesses’ expansion plans, relocation decisions, and overall demand for office spaces.
The commercial real estate market is influenced by a multitude of factors, ranging from economic conditions and market dynamics to geopolitical developments and industry-specific trends. The decline in demand observed in Delhi-NCR during the April-June period highlights the impact of global economic uncertainties on the regional commercial real estate market.
It is essential to consider these factors and their interconnectedness when analyzing market trends and understanding the dynamics of office space demand in different cities. Local economic conditions, industry-specific factors, and regional dynamics can further shape the demand for office spaces within each city.
The commercial real estate market is known for its dynamic nature, characterized by fluctuations in demand and preferences for office spaces across different cities. Economic conditions, both at a global and regional level, play a significant role in shaping the demand for commercial real estate, including office spaces. Uncertainties in the global economic landscape can have a ripple effect, influencing business sentiments and investment decisions, ultimately impacting the leasing transactions in specific regions or cities.
Analyzing such data requires considering a range of factors beyond the economic climate, including market dynamics, industry-specific trends, and local factors that may influence the demand for office spaces. The decline observed in Delhi-NCR during the April-June period serves as a reminder of the interconnectedness of the commercial real estate market with broader economic conditions.
