Leasing by flex space operators in Q1 2023 inched closer to that of Technology companies for the first time ever. Flex occupiers leased 2.1 mn sq feet of space during Q1 2023, accounting for 20%, few paces behind the technology sector’s share at 22%. Together both the sectors accounted for nearly 42% of the total leasing across top 6 cities. Occupiers’ interest in flex spaces remain unabated as they continue to blend their conventional real estate portfolio in a bid to control costs while providing convenient ways to work for their employees. Large technology occupiers have also been leasing spaces in flex spaces due to their added benefits such as flexible lease terms, lower capex and modern workplace designs. This coupled with ongoing recessionary conditions and layoffs in technology sector has led to a relative pushback in conventional leasing by these occupiers.
Bengaluru and Delhi-NCR were the most preferred locations for top flex operators for their portfolio expansion. Bengaluru accounted for nearly half of the total flex leasing during the quarter, followed by Delhi-NCR at 30% share. Along with flex, leasing by BFSI surged during the quarter, contributing to 14% of the total leasing across top 6 cities. During Q1 2023, nearly half of the leasing through large deals was by Flex and BFSI players who remained committed to their expansion plans.
“Share of Technology sector has declined steadily from 34% in Q1 2022 to 22% in Q1 2023, as corporates continue to focus on building in operational efficiencies through a hybrid model. While Hybrid working has impacted demand for conventional office spaces, it has also fueled demand for flex spaces across top markets. As long-term growth drivers for Tech sector remain strong in India, technology sector will continue to drive office leasing activity through a mix of conventional and flex spaces,” says Peush Jain, Managing Director, Office services, India, Colliers.
The year 2023 has begun on a cautious note registering a 19% YoY decline in leasing activity across top 6 cities at 10.1 mn sq ft during the first quarter. On a sequential basis leasing continued to drop, indicating delayed decision-making by occupiers amidst continued economic uncertainties. Bengaluru and Delhi-NCR accounted for half of the total leasing during Q1 2023, led by select large deals in flex space.
“Although office absorption is currently facing temporary downward pressures, leasing activity will likely pick up especially towards the latter part of the year, driven strong growth fundamentals. Large ticket deals continue to reflect its stronghold contributing to 50% of the total leasing of the quarter signaling positive market sentiment. From a supply perspective, while there is a robust supply pipeline, developers will likely remain cautious and avoid bringing in speculative supply,” says Vimal Nadar, Senior Director and Head of Research, Colliers India.
During Q1 2023, new supply across top 6 cities declined 34% YoY, at 9.5 mn sq ft. Bengaluru witnessed significant new project completions, contributing to 42% of the total new supply, followed by Hyderabad at 25% share. Vacancy levels and rentals remained range bound during the quarter, as the demand was at par with supply.
