According to JLL, India's office market net absorption would reach a three-year high in 2022

According to a survey by Jones Lang LaSalle (JLL) India, India's office market across the top seven cities (Mumbai, Delhi NCR, Bengaluru, Hyderabad, Chennai, Kolkata, and Pune) reported a net absorption of 38.25 million sq ft in 2022, a three-year high.

Net absorption is the total number of square feet that got physically occupied minus the total number of square feet that remained physically empty during a given time period.

According to the survey, net absorption for calendar year 2022 has outperformed the five-year (2015-2019) pre-pandemic average by 3.1 percent, and it is second only to the 2019 net absorption numbers for the past ten years, demonstrating the Indian office market's strong resiliency.

Absorption is decreasing from quarter to quarter.

Although net absorption in CY2022 exceeded previous records, it is down 19 percent on a quarter-on-quarter (QoQ) basis, at 7.99 million sq ft.

According to the research, this is the first hint of sluggishness, caused by global headwinds that resulted in delayed decision-making and a cautious approach from occupiers, affecting transaction closes in the fourth quarter of the year.

In the fourth quarter of 2022, Delhi NCR led the way with 23.7 percent of net absorption, with Hyderabad and Chennai displaying significant year-end momentum to outperform even Mumbai and Bengaluru.

The top three cities accounted for 60.9 percent of net absorption in Q4 2022, owing to robust supply increase backed by pre-commitments.

"The office market in India has made a significant rebound in 2022, with the year emerging as the strongest in terms of office market performance, post-COVID-19, and second only to 2019 during the prior decade. Despite the expanding hybrid work ecology, we have observed a significant increase in office utilisation. "As a result, occupiers are addressing their real-estate initiatives with greater clarity and agility," said Rahul Arora, Head, Office Leasing Advisory India, and MD, Karnataka & Kerala, at JLL India.

Furthermore, according to the research, Bengaluru maintains its leading position in terms of net absorption for calendar year 2022, with Hyderabad trailing closely behind.

"India's momentum as an actively growing office market with new job creation, its established and growing credentials as a tech and innovation hub, companies' expansion plans, and more firms looking to India for talent are all strong growth drivers for the office market to have put in such a performance for 2022," Arora added.

"Over the next 12 months, roughly 53-58 million sq ft are lined up, with typical pre-commitment levels of 14-17 percent," said Dr Samantak Das, Chief Economist and Head of Research at JLL India.

Pre-commitment rates for assets controlled by institutional landlords, who account for 30% of the supply pipeline, are 22-25%, indicating a flight to quality with healthy workspaces and ESG considerations being given significant weightage during space planning.

"Given the increasing macroeconomic headwinds, many real-estate plans have been placed on hold or delayed indefinitely, resulting in a small softening of space requirements, with active requirements dropping by roughly 15%. We can expect some delayed decision-making as businesses wait for macroeconomic signs before investing in new premises. Office demand is predicted to be similar to 2022, with a marginal to modest upside, driven by segments such as healthcare-life sciences, manufacturing/industrial segments, and its leadership position in the global IT ecosystem "he said.

For calendar year 2022, technology leads with a 27.6 percent share, followed by flex with 18.5 percent and manufacturing/industrial with 13.9 percent.

Gross leasing increased by 47.4% year on year.

According to the research, gross leasing activity for calendar year 2022 was 84 percent of the 2019 highs, indicating a solid post-COVID resurgence in market activity for the year.

According to the research, Mumbai, Bengaluru, and Delhi NCR accounted for 23.5 percent, 19.6 percent, and 18.8 percent of gross leasing activity in Q4 2022, respectively.

In terms of full-year 2022 gross lease activity, Delhi NCR and Bengaluru are the two largest office markets, followed by Mumbai. For the calendar year 2022, these three markets account for more than two-thirds of all occupier activity.

According to the report, early year (2022) market momentum slowed at the end of the year, slipping on the slope of global headwinds as occupiers slowed decision-making and waited for headline trends on overall business direction to emerge from their corporate headquarters and global clients before moving ahead with their real-estate strategies.

According to the research, tech transaction activities slowed marginally, resulting in a lower market share. Tech remained its top rank, although its share fell for the third quarter in a row to 25.3 percent, while flex continued its golden run, accounting for 18.8 percent of gross leasing activity.

With a 14 percent share of gross leasing, the BFSI (banking, financial services, and insurance) sector exhibited solid progress during the quarter, aided by some major transactions in Mumbai.

Furthermore, enterprise flex seat leasing in the form of managed or enterprise solutions had its best quarter ever, with 38,140 seats taken up in Q4 2022.

According to the research, flex seat take-up in calendar year 2022 reached an all-time high of 131,700+ seats, more than double the pre-pandemic peak of 2019. The yearly flex seat take-up in 2022 alone has eclipsed the pre-COVID years of 2018 and 2019, as well as the previous two years of 2020 and 2021.

Supply is at an all-time high.

According to the data, quarterly supply increased by 23.8 percent year on year to 14.83 million square feet. New completions in the Indian office markets hit a historic high of 58.27 million sq ft for the full year 2022.

Completions in the fourth quarter of 2022 were led by Hyderabad and Bengaluru, which accounted for 60.5 percent of the quarterly supply additions. Approximately 23% of the new supply infusion was pre-committed, indicating that occupier decision-making has shifted slightly bearish in the recent 3-4 months.

A substantial portion of this came from new completions in Chennai, where 55% of the supply was pre-committed, and Mumbai, where 28% of the supply was pre-committed. Pre-commitment rates in Hyderabad and Bengaluru were both 21 percent, while pre-commitment levels in Delhi-NCR were only 13 percent.

There is a vacancy.

According to the research, pan-India vacancy has grown to 16.6 percent, up 60 basis points year on year, with stronger supply infusion than expansion-driven occupier activity. Vacancy is projected to remain stable in the 16-17 percent range in the future.

While leasing momentum is slightly trailing, moderate to strong pre-commitments in upcoming developments, as well as predictions of leasing activity picking up steam by H2 of 2023, will maintain net absorption and keep vacancies within range.