The commercial real estate market, a sector hit drastically by the COVID-19 pandemic, has made a strong comeback in 2022. There was a steady demand for office spaces across all the key cities of India, and the market is on its way to full recovery.

The commercial property market has not only shown resilience and recovered but has also taken over the emergence of the work-from-home model and hybrid work formats to register a record performance.

A resilient market

According to real estate market research, the office vacancy levels in India’s top 6 cities decreased by 190 basis points year-on-year (YoY) to 16.6% last year. This high office space utilization in 2022 demonstrates a strong comeback and steadiness in the commercial office markets. The top 6 cities studied include Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune.

The findings of leading realty firm state that the office sector in India witnessed gross absorption of 56.6 million square feet (msf) in 2022. Thus registering a year-on-year growth of 40% and marking the second-highest leasing activity in 10 years, next to the record peak of 65 million square feet in 2019.

India’s momentum as an actively growing office market, with job creation 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.

BFSI leads the leasing game

The office market stabilizing last year and vacancies dropping after a gap of two years is indeed a good sign for both commercial and residential markets. Interestingly, it was the BFSI sector and companies which have expanded rapidly in 2022. Indian banks and global financial institutions led the leasing of large office spaces, and this figure has almost doubled since 2021. BFSI leasing accounts for a 14% share in total leasing, which is equivalent to flex space.

This growth reflects the earnings boom seen in the BFSI sector in 2023. The commercial capital city of Mumbai witnessed the highest BFSI leasing at 40% as financial institutions made their comeback to offices.

Flex spaces in demand

Flex spaces are commercial properties that contain a mix of industrial and office space. Here, operators leased 7 million square feet in 2022, which accounted for nearly 14% of all leasing and is the highest figure for this area. Since last year, flex operators have leased more offices in Grade A buildings, driven by increased demand from large businesses. Interestingly, more than 50% of the previous year’s flex space take-up was in the tech cities of Bengaluru and Pune.

Domestic firms overtake global peers

In 2022, domestic firms overtook American ones in annual leasing. Their share accounted for nearly half of the leasing share in 2022. Flexible space operators, technology corporates and BFSI companies mainly led this demand. The year also saw an increasing number of office spaces taken up by consulting and engineering firms.

Co-working spaces were also in demand in 2022. To meet this demand, a number of new co-working spaces and work pods are being launched in the market. Market research studies indicate that the co-working space stock is expected to be over 60 million square feet in metro and non-metro cities by 2023.

2022 has undoubtedly been an excellent year for Pune’s commercial real estate. The gross absorption rate of spaces witnessed a significant recovery last year. With occupiers expected to make a more systematic return to the office next year, it will be interesting to see how the commercial market in Pune shapes up.

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