According to a report by Knight Frank India, cumulative commercial transactions in Bengaluru experienced a 14.3% dip in CY2023, totaling 12.5 million square feet (msf). The decrease in transactions is attributed to inflationary trends in the US markets and a slowdown in the tech sector, a major office occupier in Bengaluru.
The report, titled ‘India Real Estate: Residential and Office (July – December 2023),’ highlighted that Global Capability Centres (GCC), flex spaces, and India-facing occupiers supported office leasing momentum in Bengaluru. Despite a moderation from tech occupiers, the city continues to be the second-most-sought-after city in India.
Vivek Rathi, Director of Research at Knight Frank India, explained, “Last year, office space absorption was exceptionally high at about 15 msf, and soon with the slowdown in the IT sector, we saw transactions coming down in Bengaluru even though it continues to remain the second-most-sought-after city across India.”
Despite lower transaction volumes, Bengaluru saw strong rent growth due to limited Grade A office space supply. Average transacted rentals in the city grew by 6.6% YoY to Rs 86.4 per sq ft per month in 2023.
Contrastingly, the eight leading Indian markets observed a total office transaction of 59.6 msf in 2023, marking a 15% YoY growth. These markets include Mumbai, NCR, Bengaluru, Pune, Chennai, Ahmedabad, Kolkata, and Hyderabad.
Mumbai recorded 7.4 msf of office space transactions in 2023, marking a 16% increase. In contrast, NCR saw 10.1 msf of transactions, reflecting a 14% growth.
While the overall vacancy across the top eight cities dropped to 16.1% in 2023 from 17% the previous year, Bengaluru experienced a 1% increase in vacancy levels. Rathi anticipates a rebound in Bengaluru’s office segment by the H2 of CY2024.
Despite a slowdown in office space leasing by third-party IT services companies, Global Capability Centres (GCC), flex, and India-facing occupiers positively influenced leasing. GCC players, particularly in manufacturing, consulting, and BFSI, showed a 58% surge in transaction volumes, growing from 13.2 msf in 2022 to 20.8 msf in 2023.
Chennai led in GCC-focused transactions with 6 msf, followed by Hyderabad at 4.1 msf.
Although the share of flex office spaces dropped nationally, Bengaluru saw a 1% increase in 2023. Flex occupiers leased 3.8 msf, constituting 30.3% of the overall transaction volume, reflecting a 23% increase over 2022.
Rathi noted, “With third-party IT services slowing down, GCC and India Facing Businesses continued to operate in flexible models, thus showing an increase in the city’s share of flex spaces.”