Offices absorb Covid-19 pandemic shock in 2022, post 3-year growth record

After their near desertion in the wake of Covid-19, workplaces well and truly made a comeback in 2022 — making it the second strongest year of recovery for the office market in the past decade.

The year saw record-high completions and pre-commitments after a slowdown of two years. Experts attribute the reversal to various factors including relaxation in Covid-19 restrictions, reopening of offices and job creation. The return to work gained momentum across all sectors, with the major growth drivers being flex spaces, technology, and banking, financial services and insurance (BFSI).

However, with a few challenges emerging across developed economies, the full impact of these risks on global corporates’ leasing decisions was yet undetermined, said Anshuman Magazine, chairman and chief executive officer (CEO), India, Southeast Asia, Middle East and Africa, of realty firm CBRE.

According to realty firm CBRE’s findings, the office sector in India witnessed gross absorption of 56.6 million square feet (msf) in 2022, registering year-on-year growth of 40 per cent and marking the second-highest leasing activity in 10 years after it touched a peak in 2019 with 65 msf.

Rahul Arora, head, office leasing advisory, India, and managing director (MD), Karnataka and Kerala, at JLL India said: “India’s momentum as an actively growing office market, with job creation, its established and growing credentials as a tech and innovation hub, companies’ expansion plans remaining intact, and more firms looking at India from a talent perspective were all strong growth drivers for the office market to have put in such a performance for 2022.”

Over the next 12 months, around 53-58 msf is lined up with average pre-commitment levels of 14-17 per cent, pointed out Samantak Das, head of research and REIS, India, JLL. For assets owned by institutional landlords, which are 30 per cent of the supply pipeline, pre-commitment rates stand at 22-25 per cent, he added.

According to Colliers, flex space operators leased 7 msf of space in 2022, the highest-ever for a calendar year, accounting for about 14 per cent share in total leasing. Flex operators are increasingly leasing offices in Grade A spaces since last year, led by higher demand from large enterprises.

“Leasing by BFSI almost doubled since last year, accounting for 14 per cent share in the overall numbers, equivalent to flex space. This resonates with the earnings boom seen in the BFSI sector this year,” said Ramesh Nair, CEO, India and MD, market development, Asia, Colliers.

Moreover, domestic firms overtook American ones in annual leasing, accounting for nearly half of the leasing share in 2022, mainly led by flexible space operators, technology corporates and BFSI companies. The year also saw increased office space taken up by consulting and engineering firms, said top real estate consultants.

On office leasing prospects for 2023, Das of JLL said that demand was expected to be similar to 2022 with a marginal upturn, driven by segments such as flex, healthcare and life sciences, GCCs (global capability centres), and manufacturing/industrial along with its leadership position in the global tech ecosystem.

According to industry reports, southern cities, especially Bengaluru, Chennai and Hyderabad, are emerging as leading hubs in office space leasing owing to robust demand from tech and flex players.

“In 2022, distributed workspace started emerging as a viable, new-age workplace framework that ensures employees safety and well-being while delivering on business continuity needs. This distributed model is an amalgamation of adaptability, efficiency, and resilience, which are all critical for businesses to pivot quickly in any uncertainty,” said Amit Ramani, founder and CEO, Awfis.

Large corporations across sectors have also started identifying tier-II cities as sunrise areas for their decentralised workspace needs, Ramani added.

Market research indicates that the co-working space stock is expected to be over 60 msf in metro and non-metro cities by 2023. Furthermore, India’s flexible office space market is projected to grow at a compound annual growth rate of around 6 per cent from 2022 to 2027, said Aditya Mehta, CEO, Akasa Coworking.