The Trends driving the rise of office space absorption in 2023
The commercial real estate sector is expected to scale new heights of growth in 2023. The Grade A offices are likely to experience a strong rebound and the vacancy rates in these offices are expected to receive a downward fall. On the other hand, Grade B offices might have to experience tough times in 2023. The post-pandemic ‘Return to Office’ trend pushed forward the demand for office spaces throughout 2022 and will continue to do so in 2023.
Office leasing sustained itself remarkably in 2022 and if the recent statistical predictions are to be believed it will sustain growth of 10-15% in 2023 as well. Some of the prominent factors that are contributing to the growth of office space leasing and absorption are –
The trend of ‘Return To Office’ is picking up pace:
The three years long spell of the work-from-home trend is now taking a backseat with employers’ preference for work from office rising rapidly. From mid-2022, organizations started calling their employees to the office in a hybrid setup majorly. This contributed to fresh demand in the market for office seating arrangements and further expansion of office space in the country. Recent reports have substantiated this trend and have predicted that office leasing activity is likely to normalize in 2023. Three main metropolitans which are prominently driving the demand for office spaces are Delhi-NCR, Bangalore, and Hyderabad. Mumbai, Kolkata, Chennai, and Pune also witnessed sustainable growth in leasing activity.
Corporates that prefer to stay close to their talent pool will also bring momentum in office leasing activity of a selected few tier II and tier III cities. Beyond the cities, the industries which are driving the demand for office spaces are technology, banking, finance, and insurance. The share of leasing by flex working spaces, engineering, and manufacturing sectors would also continue to rise.
In the present times, when India is a manufacturing hub and is also in expansion mode despite the recession, experts have predicted that office leasing activity will grow in 2023.
Industrial expansion is booming in the country:
Another significant factor that is contributing to the rising demand for office spaces is the expansion of industrial facilities. The industry giants have undergone geographical expansion post-pandemic and this led the way to increased office leasing activity across working hubs. The epicenter of such industries (the ones that are expanding geographically ) is often the Delhi-NCR region especially Gurugram which also accounts for 80% of the total leasing activity in the capital city. When it comes to office spaces the price dynamics are very volatile and experts say it’s too soon to build any prediction. Still, there is a strong probability of a price hike in the coming times.
The pandemic motivated budding entrepreneurs to believe in their idea and hence the rise in the demand for new office spaces:
The pandemic was a motivating source for many budding entrepreneurs. It ignited their spark and made them believe that they too can become unicorns. Over the second half of the pandemic, many entrepreneurs started building their businesses and this increased the demand for new office spaces. As the trend of ‘Work From Home’ almost came to an end post-pandemic, the entrepreneurial spirit and new office leasing activity have risen.
The potential in this sector is vast and as things are speeding toward normalcy, it is expected that office space absorption will grow rapidly and robustly in 2023.
Another commercial real estate industry trend that we should watch out for in 2023 is the rise in the adoption of technology by this sector.
When we talk about commercial real estate, we tend to indulge in the figures talk, sales figures, new inventory, net absorption, and more. But there is more to this sector than just plain figures like the adoption of technology by this sector. The technology trend is one of the notable trends to watch for within this space in 2023.
In commercial real estate, technology covers a broad range of operations. From data leverage and analytics software to robotics, cloud computing, and AI/ML applications the technology usage by this sector is vast. The sector also uses software and mobile applications to look after the maintenance of buildings and their real-time construction. Presently AR/VR (augmented reality and virtual reality) technology is also assisting the industry in customer service.
With the rise in the adoption of technology by commercial real estate, the sales processes are expediting and investors are showing rising interest in this sector. All of these trends together are contributing towards the rise of office leasing activity in 2023. In this fiscal year, we have reasons to believe that this sector will breach its own record of 42 million sq ft seen at the fiscal ending of March 2020.