Industry Views

Will Office Space Demand Continue Rising In 2023?

India’s office market continues to grow, supported by employment creation & its reputation as a tech & innovation hub. More firms continue to view India’s talent & business potential, which led to a strong 2022 &, more notably, bodes well for 2023.
March 13, 2023
6 mins read
Office Space Demand

In 2022, the office market performance reached a three-year high of 49.8 million sq ft, bouncing back from the dull period of Covid-19. The real estate market improved due to better business prospects, with Delhi NCR, Bengaluru, and Mumbai being the top cities for office leasing.

The net absorption of office spaces in '22 in India's top 7 cities was 38.25 million square feet, which is the second-highest in the past decade, only behind the peak of 2019. This shows that companies have a better understanding of their real estate needs, and the Indian office market has strong potential for growth.

This article looks at the leading influencers supporting India’s office sector growth in 2023 and the key cities to watch for.

Drivers Shaping Office Markets

In general, India remains a fast-growing office market. However, trends for 2023 will be influenced by a range of factors explained below:

  1. Tech, manufacturing, and flex segments to push future demand.

Although there is some decline in operational space requirements, it can be attributed to companies putting a pause on decisions based on the current economic situation.

Nonetheless, India’s critical advantage is its growing outsourcing and offshoring attraction and proven excellence in the global tech ecosystem. Driven by a broad range of sectors spanning flex, Global Capability Centres (GCCs), healthcare/life sciences, manufacturing, and industrial, the office demand in 2023 is projected to be like 2022, with a marginal to slight gain.

2. Institutional-owned and flight to quality as key criteria for future demand.

With around 58-60 mn sq ft of supply queued up in 2023, average pre-commitment levels range between 14-17%. In comparison, for institution-owned assets (which comprise 30% of the supply pipeline), pre-commitment rates range between 22-25%. These numbers indicate a flight to quality or safety, with significant priority being allocated to healthy workspaces and ESG considerations during space planning.

In fact, in 2023, development completions stemming from a strong supply pipeline may be higher, resulting in vacancy rates remaining range-bound.

3. Leasing decisions and the influence of global economic trends in the short term.

Concerning international businesses, global headwinds have prolonged decision-making as companies seek guidance from their HQs and the evolving scenarios in their home countries.

According to another study, while the possibility of a slowdown in some developed economies could significantly impact the technology sector, their impact on corporates’ leasing decisions is undetermined. At the same time, India’s cost-effectiveness and rich talent pool could lead to the normalization of leasing activity in 2023.

On the other hand, for domestic outsourcing firms, expansion activity could get limited as new contracts are negotiated.

4. Rent-To-Own (RTO) and the evolving workspace.

Workplace quality, experiences, and employee engagement will remain a priority as organizations seek to balance office-based and remote work styles. Occupiers will likely devise and implement RTO and hybrid working policies while identifying new work styles and employee preferences.

Key Cities Driving the Office Space Market

Per industry sources, in 2022, Bengaluru, Hyderabad, and Delhi NCR headlined market performance, accounting for around 63% of the net absorption for the year. The pan-India net absorption for 2022 was a significant 46.1% higher on a year-on-year basis.

New Supply Addition: For the full year 2022, new completions for the Indian office markets reached a new high at 58.27 mn sq ft (up by 27.6% on a y-o-y basis). Hyderabad and Bengaluru led the pack with a combined share of 56%, followed by Delhi NCR with 14.3%.

Of this new supply in 2022, nearly 35% was pre-committed. Here again, Bengaluru (48% of supply pre-committed), followed by Hyderabad (41%) and Chennai (32%), accounted for a substantial portion of new completion.

We look closer at the city-wise performance in the office space segment:


  • Bengaluru's net absorption increased by 15.8% y-o-y in 2022
  • Nearly 48% of new completions were pre-leased during the year
  • The IT/ITeS sector and co-working sector led demand in Q4 2022, with Whitefield outperforming other submarkets
  • Overall supply in 2022 was 14.2 million sq ft, with four new buildings completed in Q4
  • Rent prices rose by 3.6% due to MNCs and IT businesses continuing occupancy decisions
  • Vacancy rose to 12.1% due to large new supply and some medium-scale exits
  • Bengaluru fared better in 2022 than in 2020 and 2021, indicating good post-COVID recovery and future potential.


  • Net absorption increased 2.16x over 2021 to 8.96 mn sq ft in 2022
  • IT/ITeS, consulting, BFSI, and manufacturing companies drove demand in Q4
  • New completions reached a record high in 2022, with Hitec city and Gachibowli contributing in the last quarter
  • Marginal rents increased in Q4 due to new completions and some growth in current projects
  • In 2023, similar trends in new completions and net absorptions are expected, with pre-leases rising over the last few quarters
  • Due to increased supply, vacancies may grow in the short to medium term.

Delhi NCR:

  • Net absorption increased by 31% in 2022 and was close to the pre-pandemic average of 6.4 mn sq ft
  • Pre-commitments, churn deals, flex operators, tech, and manufacturing drove gross leasing in 2022
  • Gurgaon (62%) and Noida (37%) contributed most of the yearly supply
  • Rent prices are expected to rise in important corridors in 2023, supported by occupier demand
  • Despite global conditions delaying corporate decision-making, demand and supply are expected to remain strong in the short to medium term
  • In 2023, around 9.5 mn sq ft supply and more than 5 mn sq ft net absorption is expected.


  • In Q4, gross leasing was led by consultancy (28%), manufacturing and industrial (18%), BFSI (21%), and IT/ITeS (6%)
  • Demand for managed workspaces drove flex operator requirements in Q4
  • Navi Mumbai, SBD Central, SBD BKC, and the East Suburbs dominated Q4 leasing activity
  • Deals were observed in peripheral submarkets, with occupiers seeking flexibility and lower real estate costs
  • Net absorption in 2022 grew by 52.5% compared to 2021
  • Q4 saw 1.47 mn sq ft of new supply, but net space outpaced it, leading to a vacancy drop to 14%
  • Rents are expected to rise in 2023 due to low vacancies in select submarkets.


  • Co-working segment drove leasing activity in Q4 2022 (46.1%), followed by IT/ITeS (26.4%) and consulting (11.0%)
  • Around 24,800 flex seats were leased in 2022, indicating strong performance in the office market
  • Net absorption in 2022 increased by 11.1% compared to 2021
  • New supply (0.88 mn sq ft) became operational in suburban sub-markets in Q4
  • Rents in select CBD and SBD sub-markets saw marginal increases, while rents in suburbs remained unchanged
  • Quality supply with pre-commitments is expected in 2023, suggesting a good performance for the office space market.


  • In Q4 2022, the IT/ITeS sector (44%) and Healthcare, Biotech & Real Estate sector (20%) drove demand in the Chennai office market. The PBD OMR and SBD OMR combined markets contributed to 73% of the leasing activity.
  • Net absorption in 2022 was 3.51 million sq ft, the highest since 2013, and is expected to continue increasing with good pre-commitments in upcoming completions and as return-to-work figures gradually increase.
  • New completions at 5.12 million sq ft in 2022 were the highest since 2011, and vacancy rose to 10.7% at the end of Q4 2022. Embassy Splendid Techzone (Block 9) was fully pre-committed by a global BFSI company.
  • City-level rents rose 5.9% y-o-y due to new supply additions and premium rentals quoted by leading developers. Flex operators continued to expand their footprint, which is projected to continue into 2023.


  • In Q4 2022, technology firms, flexible workspace, and BFSI sector drove the demand for office space, with most of the leasing activity happening in Salt Lake, Rajarhat, and the rest of SBD. Gross leasing area was about 0.24 million sq ft.
  • Flexible workspace is expected to grow even more in 2023 due to partnerships between operators and landlords.
  • Net absorption in 2022 was 0.68 million sq ft, higher than in 2020 and 2021, and despite new completions adding only 0.27 million sq ft. Vacancy dropped to 20.4% due to stable leasing and no supply addition.
  • Average rentals increased by 1-2% q-o-q, pushed by demand in key submarkets.
  • In 2023, around 1.3 million sq ft of supply is expected, but the vacancy is likely to decrease, and occupiers' intention to expand will keep net absorption positive.


The net absorption figures of 2022 can be attributed to a stable year with record-high completions in nearly all cities, previous pre-commitments being honoured by most occupiers, and return-to-work driving office occupancies.

In a nutshell, India’s office market continues to grow, supported by employment creation and its reputation as a tech and innovation hub attracting R&D work from abroad. While companies remain committed to their expansion plans, the global economic scenario may cause anticipated delays. Nonetheless, more firms continue to view India’s talent and business potential, which led to a strong 2022 and, more notably, bodes well for 2023.

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