Leasing by flex space operators in Q1 2023 inched closer to that of technoglogy companies for the first time. Flex occupiers leased 2.1 mn sq feet of space during Q1 2023, accounting for 20%, a few paces behind the technology sector’s share at 22%. Both sectors accounted for nearly 42% of the total leasing across the top 6 cities, mentioned Colliers.
“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 the Tech sector remain strong in India, the 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.
Some of the large operators who leased space earlier this year include Tablespace, Smartworks and Bhive Workspace. “The year 2023 is going to be a landmark year in the managed and flexible office segment as it is expected to witness massive expansion in its portfolio and a transformation in its offerings,” said Shesh Paplikar, Co-founder and CEO of BHIVE Workspace.
According to the report, Bengaluru and Delhi-NCR were the most preferred locations for top flex operators for their portfolio expansion. The city 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 the 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.
“The flexible workspace industry today accounts for over a fifth of all commercial space absorption, going neck-to-neck with the traditional office space leasing model. We have over 1 million square feet of office space in Bengaluru, including Vaishnavi Tech Park, Vaishnavi Signature and Silicon Terraces, leased to some of the biggest flexible workspace providers in the country and continue to witness high interest in the segment,” said C N Govindaraju Managing Director Vaishnavi Group.
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 the technology sector, has led to a relative pushback in conventional leasing by these occupiers, said Colliers.
The year 2023 has begun on a cautious note registering a 19% YoY decline in leasing activity across the 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 faces temporary downward pressures, leasing activity will likely pick up, especially towards the latter part of the year, driven by strong growth fundamentals. Large ticket deals continue to reflect its stronghold contributing to 50% of the total leasing of the quarter, signalling 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 at Colliers India.
During Q1 2023, new supply across the top 6 cities declined 34% YoY, at 9.5 mn sq ft. Bengaluru witnessed significant new project completions, contributing to 42% of the new supply, followed by Hyderabad at 25% share. Vacancy levels and rentals remained rangebound during the quarter, as the demand was at par with supply.