The demand for office space in India is buffeted by two different forces: return-to-office mandates and concerns around hiring due to global economic uncertainties. ‘Back to office’ is becoming the norm. A survey by commercial real estate services firm CBRE in the March-ended quarter found that 96% of businesses expected employees to work at least three days a week at office once stability returns, up from 91% last year. Around 40% hoped to have work-from-office fully. A survey by Unispace found 92% of employees expect to work at least four days a week in the office in the near future.
At the same time, hiring is seeing the impact of the global economic slowdown. Top software services players Infosys, Wipro, and HCL Technologies all saw headcounts shrink in the June quarter. Startups, a key driver of employment and office space in cities such as Bengaluru and Delhi-NCR, have laid off over 28,000 employees since last year, as funding has slowed down. Many businesses are still planning to hire, but the pace has slowed. According to the ManpowerGroup Employment Outlook Survey, the share of employers planning to ramp up hiring in this quarter is down from 63% a year ago to 49%.
While economic uncertainty has lowered the demand for office space, one form that is becoming popular across cities is the flexible office space. This option allows businesses to rent office space on a short-term or month-to-month basis. Besides, some business segments are doing particularly well and driving city-level demand.
Demand drop
In 2022, the demand for office space jumped by almost 53% to 50.3 million square feet in the top six cities (Bengaluru, Pune, Delhi-NCR, Mumbai, Chennai and Hyderabad), according to Colliers, a real estate services firm. However, the economic uncertainty is expected to hurt the demand in 2023. Even in an optimistic scenario, the demand is expected to fall to 35-38 million square feet according to a Colliers analysis in March. In this case, it expects the impact of the global slowdown to be limited, and ease by the second half of 2023, as more companies offshore work to India to cut costs. According to a report by CBRE this month, the absorption of office space, or the amount of available office space that is leased, dropped by 25% in the June quarter, compared to a year ago. In June, CBRE’s Asia Pacific Leasing Market Sentiment Index, dropped for India, suggesting the tough times might continue.
Flexibility wins
In 2019, before the covid-19 pandemic, flexible space leasing accounted for 6.7 million square feet in the top six cities, or 13% of the total, according to Colliers. It dropped to 2.2 million square feet in 2020 when work-from-home became the norm. A year later it started picking up again, and accounted for 14% of total leasing across the top six cities in the past two years. The trend is likely to pick up as flexible workspaces are ideal for startups and small businesses, which are growing or contracting rapidly and might not prefer a traditional office space. According to CBRE’s analysis covering the top nine cities, flexible space accounted for 18% absorption in Q2 2023, and 22% in Q1 2023. Interestingly, the demand for flexible workspaces is higher in tier 2 cities, even as a number of IT companies started exploring smaller cities post-pandemic.
Drivers of demand
The demand for office space is not uniform across the cities, because preference for remote working varies across sectors. For example, banking and financial services (BFSI) companies tend to be less inclined to remote work compared to tech firms. They expand at different times. In the second quarter of this year, office space absorption was primarily driven by BFSI companies in Ahmedabad, Bengaluru, Mumbai and Kochi, while it was driven by technology companies in Hyderabad and Delhi-NCR. Similarly, while IT services companies are facing the heat of economic slowdown and are hiring less, Global Capability Centres, offshore units of multinational corporations that provide support services to their parent organizations, are hiring more, driving office space. According to Xpheno, a specialist staffing firm, the net headcount addition in India-based GCCs is expected to be 200,000 in 2023-24, up from 150,000 in 2022-23.
www.howindialives.com is a database and search engine for public data.
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