Office leasing in Pune increases by ~13% Y-o-Y to 6.3 million sq. ft. in 2023

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Pune, 4th January 2024 – CBRE South Asia Pvt. Ltd, a leading real estate consulting firm, today announced the findings of its report ‘CBRE India Office Figures Q4 2023’. According to the report, office space leasing in Pune increased by ~13% Y-o-Y and stood at 6.3 mn. sq. ft absorption in 2023 compared to 5.6 mn. sq. ft. 2022.

In Oct-Dec’23 the city recorded space absorption of 1.2 mn. sq. ft. while supply stood at 0.3 mn. sq. ft. Key sectors that drove absorption included BFSI (23%), automobile (15%) and technology (14%).

Key transactions recorded during Oct- Dec’23 in the city were:

Bajaj Finserv leased 97,000 sq. ft. in Trion IT Park
Apex Fund Services leased 63,300 sq. ft. in M Agile
Genpact leased 36,200 sq. ft. in EON Free Zone (B Block)

The report highlighted that Pune office space take-up was driven by small-sized (less than 50,000 sq. ft.) deals in Oct-Dec’23. Furthermore, IT segment dominated absorption with 47% share, followed by SEZ segment (38%) and non-IT (15%).

On a pan-India basis, the office sector in India witnessed a gross absorption of 61.6 mn. sq. ft. during 2023 across 9 cities, registering a growth of 7% (Y-o-Y), marking a 4-year high leasing activity after it touched the peak in 2019 with 65 mn. sq. ft. Development completions increased by about 13% Y-o-Y to reach 56.7 million sq. ft., an all-time high during 2023. Developers continued to exhibit their efforts towards sustainability, with nearly half of the newly completed developments during 2023 being green-certified (LEED or IGBC).

As per the report, Bangalore, Hyderabad, and Chennai accounted for nearly 57% of the yearly leasing activity. On an annual basis, BFSI firms drove leasing with a share of (22%), followed by technology companies (21%), engineering & manufacturing companies (15%), and flexible space operators (14%). American multinationals led the leasing activity in the BFSI sector, accounting for about 48% of the total leasing as they leased office space for their global capability centres (GCCs).

Office space take-up was dominated by small- (less than 10,000 sq. ft.) to medium-sized (10,000 – 50,000 sq. ft.) transactions in 2023 with a share of 84%. The share of large-sized deals (greater than 100,000 sq. ft.) in 2023 marginally increased to 7% from 6% in 2022. Bangalore and Hyderabad dominated large-sized deal closures in 2023, followed by Chennai and Delhi-NCR, while a few such deals were also reported in Pune and Mumbai.

Quarter analysis

Oct-Dec’23 quarter witnessed the highest ever quarterly office leasing activity. Leasing during the quarter (Oct-Dec’23) increased by 16% Q-o-Q and 20% Y-o-Y to 19.0 mn. sq. ft. Bangalore, Hyderabad and Chennai accounted for nearly 60% of the quarterly leasing activity.

Quarterly office leasing was driven by BFSI players and technology corporates which accounted for a share of 20% each, followed by engineering and manufacturing companies (16%), flexible space operators (12%), research, consulting & analytics firms (5%) and media & marketing firms (5%).

In the quarter (Oct- Dec’23), domestic firms led leasing with a 45% share, primarily led by flexible space operators and BFSI firms. Within the Indian BFSI firms, the space take up was led by commercial banks and insurance firms that increased their appetite for office space as they undertook expansionary activities during the year.

As per the report, new completions increased by 3% Y-o-Y to touch 15.6 million sq. ft. Hyderabad, Bangalore, and Delhi-NCR dominated new completions in Q4 2023 (Oct-Dec’23) with a combined share of 56%.

Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said, “In 2023, the global economy, while grappling with monetary tightening and geopolitical challenges, fared better than expected. Most major economies managed to avoid a recession, while the Indian economy continued demonstrating resilience in the year gone by. The Indian economy is anticipated to exhibit similar resilience in 2024 as well, led by strong domestic growth and sustained capital expenditure.

The office sector also performed better than expected, with many occupiers finalising deals in the latter half of the year. Driven by steady momentum in enquiries, this demand is likely to remain largely stable during H1 2024. However, we expect demand to pick up momentum during H2 2024, led by clearer visibility of the global macroeconomic situation and an uptick in the global information technology (IT) services sector.”

Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India, said, “Global firms would also continue to finalise their leasing decisions as they aim to set up or expand their footprint in the country. The office sector is likely to witness expansion by domestic firms from sectors such as banking, financial services, and insurance (BFSI) and engineering and manufacturing, while also seeing growth from other sectors such as life sciences and flexible space operators.

While the demand in the office sector in 2024 is expected to be led by Bangalore, followed by Delhi-NCR and Hyderabad, Chennai and Pune are also being increasingly preferred by occupiers on account of quality supply addition, presence of skilled talent, robust infrastructure, and competitive costs”.

Outlook and other observations

Office sector likely to witness steady demand with a possible uptick in 2024

Driven by steady momentum in enquiries, the demand is likely to remain largely stable during H1 2024
Global firms would also continue to finalise their leasing decisions as they aim to set up or expand their footprint in the country
Office sector is likely to witness expansion by domestic firms from sectors such as banking, financial services and insurance (BFSI) and engineering and manufacturing
The sector would continue to witness growth from other sectors such as life sciences and flexible space operator
Office sector demand in 2024 is expected to be led by Bangalore, followed by Delhi-NCR and Hyderabad, Chennai and Pune are also being increasingly preferred by occupiers on account of quality supply addition, presence of skilled talent, robust infrastructure, and competitive costs.

GCCs to continue being a prime demand driver

Global occupiers from sectors such as BFSI, technology, and engineering and manufacturing are likely to continue expanding their GCC services in India, even foraying into multi-functional centres in 2024.
The office sector is likely to witness the expansion of small and mid-sized firms seeking to upgrade their digital and deep technology services such as artificial intelligence and machine learning
Mature GCC occupiers, with a large existing footprint and long-term vision, could also explore large-sized campus developments in the top cities of India
Newer entrants, on the other hand, would likely explore flexible spaces that offer the convenience of scaling / downsizing as required.

Investible-grade assets pipeline would remain strong

The supply pipeline is expected to remain strong with several high-quality, investment-grade assets likely to be introduced in 2024
Bangalore, Hyderabad, and Delhi-NCR would continue dominating the completions, followed by Chennai, Pune, Mumbai, and Kolkata
Developers would also continue catering to occupiers’ need for state-of-the-art facilities and amenities through well-located and ‘futureproofed’ assets
With the top Indian cities already witnessing considerable infrastructure upgradation, well-located buildings which are accessible through public transport are likely to command a premium in the market.
Besides, select micro markets across the country are also likely to witness moderate growth in rentals led by the infusion of new quality supply or low availability of contiguous spaces.

Flexible spaces would continue seeing sustained demand from enterprises

Increasing managed and co-working spaces’ usage is likely to remain a key portfolio strategy for occupiers
During 2023, flexible space operators’ leasing accounted for a 14% share in overall office leasing.
As per CBRE’s India Office Occupier Survey, Q2 2023, a major share of respondents are planning to allocate more than 10% of their office portfolios to flexible spaces. This proportion is expected to rise from 43% in Q1 2023 to 56% by 2025. With corporates expected to continue framing hybrid working policies, the demand for flexible spaces is likely to remain resilient.

Employee experience on top of occupiers’ agenda

As hybrid working takes precedence, occupiers have firmly placed elevating employees’ experience on top of their agenda.
Employers are looking to provide an experiential workplace to employees which is not just amenable to various working styles but also provides comfort and furthers their health.
Occupiers would consider aspects such as agile workplace layouts, biophilic designs, well-being initiatives to foster a comprehensive approach to employees’ wellbeing.

Sustainable features emerging as ‘must-haves’ in office buildings

Amidst rising concerns over climate change, top office developers are increasingly focusing on sustainable office buildings.
Aspects such as waste and water management, sustainable sourcing, renewable energy usage, and energy efficiency are becoming some of the top priorities for developers.
Top office occupiers too have committed to achieving net zero by 2050 and are likely to gravitate towards sustainable buildings with a focus on green certifications.

Other city highlights (Oct-Dec ‘23):

Bangalore emerged as front runner in overall office leasing

Around 4.7 mn. sq. ft. absorption was recorded
Key sectors driving absorption included engineering & manufacturing (26%), technology (24%), flexible space operators (18%)

Hyderabad Tech, RCA, and Life Sciences firms dominated quarterly leasing

Around 3.5 mn. sq. ft. absorption was recorded
Key sectors driving absorption included technology (24%), research, consulting & analytics (15%), life sciences (14%)

Delhi-NCR strong leasing activity led by tech and BFSI companies

Around 3.0 mn. sq. ft. absorption was recorded
Key sectors driving absorption included technology (31%), BFSI (17%), engineering & manufacturing (8%)

Chennai BFSI & E&M firms drove leasing; rise in quarterly supply

Around 3.2 mn. sq. ft. absorption was recorded
Key sectors driving absorption included BFSI (26%), engineering & manufacturing (22%), flexible space operators (18%)

Mumbai’s BFSI firms dominate leasing; uptick in quarterly supply

Around 3.0 mn. sq. ft absorption was recorded
Key sectors driving absorption included BFSI (50%), media & marketing (17%), and engineering & manufacturing (10%).

Kolkata Tech and BFSI corporates drove quarterly absorption

Around 0.2 mn. sq. ft. absorption was recorded
Key sectors driving absorption included technology (33%), BFSI (30%), and flexible space operators (11%)

Ahmedabad Aviation and tech corporates drove quarterly absorption

Around 0.2 mn. sq. ft. absorption was recorded
Key sectors driving absorption included aviation (40%), technology (31%), food & beverage (16%)

Kochi Quarterly absorption dominated by BFSI firms

Around 0.03 mn. sq. ft. absorption was recorded
Key sectors driving absorption included BFSI (44%), Engineering & manufacturing (29%), and technology (14%)