Vestian Released The Connect Quarterly Report Presents A Comprehensive Analysis Of The Office Market Performance In Q1 2023

Bangalore, 17th May 2023 – The Vestian report ‘The Connect Q1 2023’ presents a comprehensive analysis of the office market performance of seven key cities of the country – Bengaluru, Mumbai, Hyderabad, Chennai, Kolkata, NCR and Pune showcasing market trends during Q1 2023 as well as the nine months of the year with YOY data, along with future perspectives for the industry.

The Indian economy experienced a decline in its GDP growth rate, reaching 4.4% in the third quarter of FY2023 compared to 5.2% in the same quarter the previous year. This can be attributed to the fading impact of the pandemic-induced base effect and the global economic slowdown, as reported in The Connect Quarterly Report Q1 2023 by Vestian. Furthermore, the Gross Value Added (GVA) growth rate continued to decline, reaching 4.6% during the third quarter of FY2023, compared to 4.7% in the same quarter of the preceding year and 5.6% in the previous quarter. The dip was mainly due to a contraction of 1.1% in the manufacturing sector during Q3 FY2023, driven by weakened consumer demand and exports.

To address these economic challenges, the Reserve Bank of India (RBI) increased the repo rate by 25 basis points to 6.50% between January and March 2023. As a result, the Consumer Price Index (CPI) decreased to 6.44% in February 2023 and further eased to 5.66% in March 2023. The Wholesale Price Index (WPI) also reached its lowest level in the past 29 months, standing at around 1.34% in March 2023. Foreign Direct Investment (FDI) inflows into India faced a decline, with a total inflow of USD 15.98 billion during Q3 FY2023, representing a quarterly decrease of 4%. Year-on-year, FDI inflows declined by 11% amid economic uncertainty prevailing worldwide.

Pan India Office Market Reflects Slender Slowdown in Demand

The Indian office market experienced a slight slowdown in demand, largely influenced by mass layoffs and the looming fear of a recession in the US economy. As a result, office space absorption witnessed a decline of 4% during Q1 2023 compared to the same quarter last year, according to the Vestian report. Despite the overall slowdown, the IT-ITeS sector continued to lead office space absorption, accounting for a 23% share during Q1 2023. However, this figure represents a decrease from the previous quarter’s 31% share.

New completions in the top seven cities of India amounted to 8.60 million square feet during the first quarter of 2023, marking a decline for two consecutive quarters. This represents a year-on-year decrease of 29% and a quarterly decrease of 12%. Notably, office space absorption surpassed new completions during Q1 2023, leading to a correction in overall vacancy to 16.1% during this period, down from 16.8% in the previous quarter.

City-wise Office Market Highlights

  • Bengaluru accounted for approximately 28% of the total office space absorption during Q1 2023, representing the highest share among the top seven cities. However, the absorption rate was 6% lower compared to the previous quarter.
  • Kolkata reported the highest new completions of 0.40 million square feet during Q1 2023, the highest in the past five quarters. Nevertheless, the city accounted for a mere 5% of the total new completions pan India.
  • Bengaluru led in terms of new completions with a 31% share during Q1 2023, followed by the National Capital Region (NCR) at 20%.
  • While Bengaluru and Pune registered single-digit vacancy rates during Q1 2023, Kolkata reported the highest vacancy rate among the top seven cities in India.