Market Trends of Global Office Space Industry
The Popularity Of Flexible Office Spaces is Increasing
The demand for office spaces increased significantly due to the maturity of the flexible workspace market, particularly in some cities, and the need for pandemic preparedness. The emergence of several start-ups and greater appreciation for existing market players offering flexible workspaces as real estate strategies underpinned this trend. As technology companies seek to set up global capability centers with a flexible model that allows them to control costs successfully in an economically challenging environment, demand for flexible office space will increase. Increased flexibility and shorter lease periods are expected to be requested by occupiers due to the effects of the pandemic and recession. They will be more careful when allocating capital and operational costs. This trend is expected to continue, and enterprise corporate offices may look for fitted-out spaces, shorter leases, or privately operated spaces with an average lock-in period of 36 months or less. According to industry reports, by 2024, the number of flexible workspace desks is expected to increase from 2.54 million to 3.1 million.
However, with increased occupancy levels and demand, vital micro-market operators are looking to improve their prices. The occupancy rate of flex contracts in private offices returned to a pre-pandemic level of more than 80% and more than 65% for shared space. Flex operators charged higher prices for private office desks, as recorded by an average 9% increase in October 2022 in Europe.
Indian Cities Recorded Highest Prime Office Rental Growth in Asia-Pacific
In India, the Mumbai Metropolitan Region recorded the highest office rental, followed by the National Capital Region (NCR) and Bengaluru, in the first half of 2023. The highest rental growth of approximately 16% Y-o-Y was recorded in Mumbai owing to limited availability of space, followed by Delhi-NCR and Pune, which noted a marginal rise of 3% and 2% Y-o-Y, respectively.
Bengaluru and Hyderabad saw a rise in vacancy levels due to a consistent infusion of space outpacing the leasing momentum. The Indian commercial real estate sector was not completely insulated from headwinds of slowing global economic growth, with select organizations reducing headcount and a few cities undergoing a technical recession. There was a visible slowdown in demand in the first quarter, with a 14% decline compared to the previous year, which continued in the second quarter, with demand contracting by 9% Y-o-Y.
With quite a few tech companies encouraging employees to return to the office, leasing activity saw a marked improvement in the city. The IT sector accounted for 46% of the leasing activity in Chennai in H1 2023, demonstrating its continued importance to the city鈥檚 office market. Following the IT-BPM sector, flexible workspaces were leased aggressively, with a contribution of 21% and nearly 0.9 million sq. ft of leased area. The energy and chemicals sector occupiers were also active, with a substantial 19% share in leasing activity in H1 2023, up from a negligible share in H1 2022.
