Occupier activity slows slightly

• With occupiers being cautious in decision-making, leasing activity in 2Q23 was down 15.3% q-o-q, and down 11% h-o-h. This was anticipated given global headwinds and the tech sector being muted, but the impact was not as pronounced as earlier expected. Net absorption was largely steady q-o-q, indicating stable trends in the city.
• Demand was led by the SBD submarket, with the Outer Ring Road accounting for two-thirds of market activity as it remains the most sought-after corridor. Space leased by tech in 2Q23 was up by 2.3-times q-o-q, accounting for the biggest share in the quarterly leasing volume. Flex remained quite active in the quarter and continued to drive market activity with a share second only to tech.

Quarterly supply down by 51% q-o-q at 2.31 million sq ft

• New completions were headlined by the SBD submarket, which accounted for 79% of the new supply added in the quarter. The major buildings completed in the quarter included the Wells Fargo BTS – Embassy Tech Village in SBD ORR, MFAR Wilshire in Whitefield and Brigade Deccan Heights in SBD North.
• With an overall pre-commitment rate of 28% in new completions, vacancy was down by 40 bps q-o-q to 12.6%. The core office markets and tech parks continue to operate at 90%–95% occupancy levels, while peripheral corridors struggled with higher vacancy levels.

Rents strengthen by 1.2% q-o-q

• Rents in key corridors and in prominent projects strengthened as demand for quality assets remained healthy. Maximum rent growth was seen in the CBD and SBD corridors.
• Investor interest in core and build-to-core assets in key corridors remained steady, and hence, capital values moved in tandem to keep yields steady in the quarter. Going forward, yields are expected to compress for core assets.

Outlook: Active enquiries and pre-commitments to support demand

• Despite global headwinds and occupiers deferring/delaying their space plans, the demand pipeline remains strong, with 15–18 million sq ft of active space enquiries. Global capability centres (GCCs) across tech, financial services, engineering/manufacturing, consulting and flex are expected to be the main demand drivers going forward.
• The city remains a major global offshoring hub, and given its cost advantages and talent pool, it is likely to remain high on the radar of firms looking for strategic business outcomes centred around R&D and tech. Demand is expected to remain strong in the medium term even though global macroeconomic conditions did not have as big an impact on market activity as earlier predicted.