Leasing by Engineering & Manufacturing firms tripled in Q2 2023: Colliers

• Office demand across top 6 cities up 2% YoY at 14.6 mn sq ft
• Engineering & Manufacturing gained significant share at 21%; Technology sector continued to dominate at 26% share
• Leasing by Engineering and Manufacturing firms rose 3X YoY
• Bengaluru and Chennai led overall leasing at 23% share each
• New supply rose 32% YoY pushing vacancy levels up by 40 bps

GURGAON, India, July 6, 2023 /PRNewswire/ -- Q2 2023 recorded 14.6 mn sq ft of gross absorption across top 6 cities, rising by 2% YoY, making a strong comeback after a cautious first quarter. Amidst global economic headwinds, demand continued to grow on a sequential basis, indicating a continued occupier confidence. Bengaluru and Chennai led the demand during Q2 2023, accounting for about half of the total leasing across the top 6 cities. After witnessing lackluster demand for the last few quarters, Chennai saw a three-fold rise in demand during Q2 2023, led by enhanced occupier activity.

Key occupier trends in Grade A gross absorption (in million sq feet)

Trends in Grade A gross absorption (in million sq feet)

Technology and Engineering & Manufacturing sectors together dominated the office leasing activity in Q2 2023 contributing to 47% of the total leasing during the quarter. Leasing by Engineering and Manufacturing firms witnessed a three-fold rise YoY, as occupiers continued to take up larger spaces across top markets. Bengaluru and Chennai were the most preferred locations for engineering and manufacturing companies for their office expansions.

While the share of Technology continued to dip from 40% in Q2 2022 to 26% in Q2 2023 amidst a weak demand scenario, it remained dominant. At the same time, they continue to blend their real estate portfolio with flex as their core strategy, attracted by the flexibility, agility, and cost-effectiveness that they offer. Leasing by flex space surged 58% YoY during the quarter, as occupiers continued to adopt flex space as a long-term strategy.

"Engineering, manufacturing, BFSI and flex spaces have seen a strong rise in leasing, at 71% rise YoY in Q2 2023. This signals optimism along with growth in domestic consumption & investment, translating into office space demand. Flex spaces continue to gain larger ground, as occupiers focus on building operational efficiencies through a hybrid and distributed work model. The second half of 2023 is starting on a promising note with resurgence in demand across geographies," says Peush Jain, Managing Director, Office services, India, Colliers.

Chennai surpassed Mumbai and Delhi-NCR in leasing

After witnessing subdued activity for the last few quarters, Chennai saw heightened leasing activity during the quarter and accounted for about 23% of the total leasing Pan India, at par with Bengaluru. This surge can be attributed primarily to the growing demand from technology and engineering & manufacturing occupiers. The city is also seeing rising interest from flex operators, who are expanding their market coverage across cities. Share of flex space in total leasing of the city surged to 19% in Q2 2023, from a mere 7% in Q2 2022.

Vacancy levels inched up led by exits and significant new supply

During Q2 2023, new supply across the top 6 cities increased 32% YoY, at 12.4 mn sq ft. Bengaluru witnessed significant new completions, contributing to 31% of the total new supply, followed by Hyderabad with a 24% share. However, amidst robust supply, vacancy levels surged by 40 basis points (bps) on a YoY basis at 17.4%, as occupiers continue to consolidate their real estate portfolios to bring in cost and space efficiency while they adopt and build hybrid work models.

"Q2 2023 witnessed a significant rise of 32% YoY in new supply as demand continued to improve. As the market stabilizes further with improved demand towards the latter part of the year, developers are likely to speed up their project completions. Amidst improving demand conditions supported by relevant market supply, vacancy levels are expected to remain rangebound & stabilize, with a potential upside on rentals by the end of the year," says Vimal Nadar, Senior Director and Head of Research, Colliers India.

Trends in Grade A new supply (in million sq feet)

Media Contact:
Sukanya Dasgupta
Senior Director & Head, Marketing & Communications| India
[email protected]
+91 9811867682

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Colliers (NASDAQ: CIGI) (TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 66 countries, our 18,000 enterprising professionals work collaboratively to provide expert real estate and investment advice to clients. For more than 28 years, our experienced leadership with significant inside ownership has delivered compound annual investment returns of approximately 20% for shareholders. With annual revenues of $4.5 billion and $98 billion of assets under management, Colliers maximizes the potential of property and real assets to accelerate the success of our clients, our investors and our people. Learn more at corporate.colliers.com, Twitter (@Colliers) or LinkedIn.

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