Office leasing net absorption likely to decline 10% on-year in FY24
net absorption of office leasing across the top six cities in India is likely to decline by 10% from a year ago in the ongoing financial year 2023-24. This along with an influx of huge supply, would result in a marginal rise in vacancy levels by 60 basis points to 15.5% by the end of the year, said ratings agency ICRA.
The office developers are expected to witness a revenue growth of 11-13% during the year, supported by scheduled rent escalation and improvement in occupancy levels of reputed office players.
Further, the rental rates are estimated to rise by 3-5% from a year ago in 2023-24 led by contracted escalations and lease renewals at higher rates.
The ratings agency’s outlook on commercial office sector is Stable.
The net absorption of office leasing stood healthy at around 57 million sq ft in 2022-23 similar to 2019-20 levels as corporates continued to focus on returning to office, and additional space was required for existing tenants. Physical occupancy increased to around 65% as of June 2023 from 25% in June 2022.
“Given the global macroeconomic headwinds, many tenants chose to adopt a cautious approach while going ahead with the expansion plans.
This can also be seen from a decline in the net absorption by 40% on-year to 9.6 million sq ft in Q1 FY2024 from 13.4 million sq ft in Q1 FY2023. The large space-takers are expected to continue to adopt a wait-and-watch approach in the near term, which is expected to result in a 10% on-year moderation in net absorption levels in FY2024,” said Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA.
However, according to her, India continues to remain a preferred destination for global capability centers (GCCs).
