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Office absorption increased by 13% to 134 lakh sq ft in Q1 2024 from 118.5 lakh sq ft in Q1 2023 on the back of ‘Return to Office’ mandate by several corporates, a report by Vestian has said.
Cities covered in the report included Bengaluru, Chennai, Hyderabad, Mumbai, Kolkata, Pune and NCR.
Office space absorption, however, declined by 31% in the January to March quarter after peaking in Q4 2023. Southern cities such as Bengaluru, Chennai, and Hyderabad accounted for 61% of the pan India absorption in Q1 2024 with its share increasing from 54% a year earlier, said the report.
Absorption more than doubled within a year in Chennai and Mumbai, whereas it increased by 51% in Hyderabad. All the other cities witnessed a decline over the same period a year earlier, the report said.
The office space leasing in Delhi-NCR fell 25% annually to 18.1 lakh sq ft in January-March this year on lower demand from corporates, according to the report. The office space absorption stood at 24 lakh square feet in the year-ago period.
The leasing of office space in Delhi-NCR dropped 40% from 30 lakh sq ft in the October-December quarter, the report showed.
The IT-ITeS sector dominated absorption with 47% share, followed by the BFSI sector with 11% share. Flexible spaces garnered interest from large conglomerates post-pandemic, accounting for 8% of the pan-India absorption in Q1 2024, the report showed.
“2024 started on a positive note as major office markets of India witnessed sustained absorption activities. The ‘Return to Office’ mandates are likely to renew demand for office space across the country and may drive the next wave of growth amid global headwinds,” said Shrinivas Rao, FRICS, CEO, Vestian.
New completions followed the same trend and witnessed an annual increase of 26%, reaching 108 lakh sq ft in Q1 2024. However, new completions declined by 27% over the previous quarter. While Bengaluru dominated new completions with 37 lakh sq ft, Hyderabad reported nearly 25 lakh sq ft of supply during Q1 2024, the report showed.
Absorption surpassing new completions led to a slight improvement in occupancy levels across the country. Currently, the vacancy level stands at 13.8%, which may improve further in the second half of 2024, owing to the growing prominence of ‘Back to Office’ mandates.
Sustained absorption activities and limited new completions in the past year guided rentals northward. As a result, rentals appreciated across the top seven cities in the range of 2.4% to 6.8% over the previous year. Pune witnessed the highest annual increase in rentals due to robust demand for office spaces with a majority of transactions, around 37%, concentrated in the manufacturing and engineering sector.
“Domestic investors are bullish about India’s growth story and may contribute significantly to the future growth of office spaces in India,” said Rao.
