Navigating hybrid work and uncertain times

India’s office space market is expected to bounce back 

The Indian office space market has been a topic of discussion since early 2020. According to real estate solutions firm Meraqi, the annual office space absorption from 2019 to 2022 showed a spike in 2022 due to latent demand from 2020 and 2021, and hiring in the knowledge industry has been at an all-time high. However, the cumulative office space absorption for 2020, 2021, and 2022 is 40 percent short of what it would have been at 2019 levels, indicating a shift towards hybrid workplaces. Occupancy in most IT parks is at 35 percent compared to pre-COVID levels, and many IT majors have de-leased or are in the process of de-leasing their office space portfolios. 

The reduction in space is prevalent in the IT services sector, while firms engaged in product development work have resumed working from the office. Demand in CBD and SBD has been robust due to firms located there resuming work from the office. Co-working and managed offices now constitute almost 18 percent of total absorption, with expectations to rise to 30 percent in the next three-five years. The average annual office space demand in India is expected to be in the range of 30-35 million square feet, which is 33 percent less than the peak of 2019 numbers.

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Leasing of office space in six major Indian cities may decline by 25-30 percent this year to 35-38 million square feet on subdued demand, according to newsletter Outlook and industry body FICCI. The report said that in an optimistic scenario, India’s office sector is likely to see about 35-38 million square feet of gross leasing in 2023. 

Leasing activity is expected to pick up in the second half of the year, led by global capability centres, BFSI companies, and startups with sound business models. The report suggested that while the office market in 2023 looks uncertain currently, it might bounce back with relative ease despite the global headwinds and other externalities. Hybrid working is expected to be a game-changer in the future of work, with occupiers likely to switch gears towards the adoption of the hybrid model to accommodate employees’ changing needs. 

The report also noted that a relative slowdown is expected in overall traction, especially from the tech sector due to ongoing layoffs triggered by slower external demand. However, leasing by flex, engineering, and BFSI companies is expected to remain resilient.

The Property Report editors wrote this article. For more information, email: [email protected].