Resurgence of Office Space

After a painful slump,demand for office properties across India are on an upward swing, with Kolkata emerging as a surprise contender

With three years of pandemic horror behind us, businesses are now bouncing back to… well… business! Although some industries – mostly the IT and the ITES – are still experimenting with the hybrid work-model, for the majority it is back to the old normal. And keeping with that trend, the commercial realty sector in India is witnessing a strong recovery in demand.According to year-end data based on the findings of multinational real estate consultant CBRE, this sector recorded total office leasing figures of 56.6 million square feet in 2022, a 40% rise year-on-year. And this despite the overall global uncertainties – both economic and geopolitical.It is, in fact, the second-highest leasing activity for this sector ever since it peaked with 65 million square feet in 2019.

Going normal in 2023

In 2023, wider normalisation practices are expected. Indeed, sectors likebanking, financial services, insurance, pharma, healthcare, media, and manufacturing hadphysically returned to workby late 2020 itself.Now major IT companies are alsoadvocating on minimising the hybrid model to the absolutely necessary level. Return-to-office is being actively encouraged for several reasons, and experts foresee at least 60-65% of the   pre-pandemicworkforce will be attending regular office by mid-2023.As observed in 2022, the share of leasing by domestic firms will continue to play a critical role in determining the overall performance of the market foroffice space.

The recently published 18th edition of the half-yearly report fromconsultancy firmKnight Frank India presents an analysis of the residential and office market performance across eight major cities during July–December2022. Titled India Real Estate: 2022 – the report reveals that completion ofnew office space grew by 28% YoY to 49.4 mnsq ft during that period.Service sectors, including e-commerce, education, healthcare, and logistics companies, accounted for the highest share at 30%, followed by the IT sector at 22% of the total space transacted.The co-working sector also witnessed a 3% growth over 2021. However, the manufacturing sector recorded a decline in the share of total transactions from 21% percent in H2 2021 to 12% in H2 2022.

The top performers

In line with historical trends, Bengaluru led in office leasing with 28% of the total transactions across the eight key markets. The prominent presence of the IT sector, a strong start-up ecosystem, and the expansion of new-age companies in the areas of e-commerce, fin-tech and ed-tech has buoyed the demand for office leasing in Bengaluru, the report said.

The CBRE survey also corroborated the Knight Frank report as it found Bengaluru to be the frontrunner in overall office leasing followed by Delhi-NCR and Mumbai dominating the absorption by domestic firms. It predicts that in 2023, Bengaluru, Delhi-NCR and Hyderabad would remain the biggest demand drivers, while sustained leasing activity is also expected in Mumbai, Chennai, Pune, and Kolkata. Select tier-II and tier-III markets would also continue to attract attention from corporates preferring to locate closer to their talent pool.

Kolkata calling

Closer home, Office space occupancyis trending at a decades high in the tech hubs in and around Kolkata. Quite surprisingly, Kolkata has emerged as a preferred location for several IT majors, audit and consultancy firms, post-pandemic. Real estate industry sources confirmed that office propertiesin Salt Lake Sector V and Rajarhat – the two tech hubs of Kolkata–are currently showing an occupancy rate of 83%. This is the highest in the last 15 years and demand is expected to overtake supply by the end of 2023 if this robust trend continues at the current rate.Just to put things in perspective, commercial real estates atKolkata historicallyoperated with a 40% vacancy rate!

Encouraged by the trend developers are looking at new Kolkata-centric projects. Demand seems high for both large office spaces as well as small offices. Big names have already marked occupancy. Infosys has taken up about 40,000 square foot space in one of the largest upcoming properties in Rajarhat. Plus, Infosys is already building its own campus in a 50-acre plot at Rajarhat.ITC Infotechis also constructing a campus there. Another positive development is a number of mid- to large-companies taking up space in Kolkata for the first time – including L&T Infotech, Mindtree, Zensar andCalsoft.ArcelorMittal, too, is expanding by taking up larger properties.

Industry experts feel this can be an effect of the pandemic-induced WFH. The pandemic forced employees to return to their home-towns. This was when a lot of big Indian brands realised that Kolkata and its vicinities are home to a huge skilled workforce. This was when they started thinking of setting up a base closer to the talent poolin Eastern India.All in all, such initiatives would indeed go a long way inretaining talent, as well as widening the net for diverse talent.

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