PRESS RELEASE

October 19, 2022

Vacancy levels to remain range-bound at 16.0-17.0% in FY2023

despite sizeable supply addition: ICRA
• Supply addition expected to increase by 10-15% to over 50 msf in FY2023
• Notwithstanding the increase in supply, the vacancy is likely to remain range bound at 16.0-17.0% in FY2023 aided
by recovery in net absorption by 16% to around 39 msf

The net absorption is the highest in Q1 FY2023 in the last ten quarters, indicating recovery supported by healthy
deal traction in new leases. New leasing was predominantly led by tenants from e-commerce, healthcare tech,
cloud infrastructure, renewables, media, automobile, etc. The net absorption is higher than incremental
completions in Q1 FY2023, resulting in moderation in vacancy levels to 15.7% from a high of 16.3% in Q2 FY2022.
Elaborating on expected performance in FY2023, Ms. Anupama Reddy, Vice-President, ICRA said: “The net
absorption is expected to increase by 16% in FY2023 owing to expected improvement in new leasing activity with
resumption of back-to-office and robust prospects of key occupier segments. However, the demand potential from
the growth in hiring numbers will be offset to some extent by the implementation of hybrid working models. The
supply is expected to witness a significant increase by 10-15% to over 50 msf in FY2023, which is the highest in the
last seven years. The majority of this is in Hyderabad (36%), followed by Bengaluru (23%) and Delhi NCR (17%).
Notwithstanding this, the vacancy is likely to remain range-bound at 16.0-17.0% in FY2023 (PY: 16.1%) aided by
recovery in absorption.”
Exhibit 2: Annual trend in net absorption, new supply and vacancy – aggregate for top six cities

60 18.3% 20.0%
16.5% 16.5% 16.1% 16.7% 18.0%
15.9% 15.3%
50
13.9% 16.0%
14.0%
40
12.0%
30 10.0%
56 53
50 47 8.0%
42 45 42
20 39 37 38 40 39
34 34 33 6.0%
25 4.0%
10
2.0%
- 0.0%
FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 Est

Net absorption in msf (LHS) Completions in msf (LHS) Vacancy in % (RHS)

Source: Propequity and ICRA Research

The Covid-19 pandemic put pressure on occupancy numbers in the office leasing segment of the commercial real
estate sector over the last two years, as absorption remained at lower-than-incremental completions. The adoption
of work-from-home policies by corporates witnessed low physical occupancies and deferment of new leasing
transactions. The net absorption1 had declined to 25 msf in FY2021 and remained moderate at 33 msf in FY2022
compared to more than 50 msf in FY2020. This saw an increase in vacancy levels to around 16% as on March 2022
from around 14% as on March 2020.

1
Net absorption refers to incremental new space tie-up, includes top 6 cities – Mumbai, Delhi-NCR, Bangalore, Hyderabad, Chennai and Pune

www.icra.in
 Commenting on the commercial office outlook, Ms. Reddy says: “ICRA expects a revenue growth of around 5%
(excluding impact of acquisitions and new capex) in FY2023, driven by rent escalations as per the contractual terms
and mark-to-market growth on renewals. Leverage, Debt/Net Operating Income (NOI), is expected to be maintained
in the range of 6x-8x in FY2023 for majority of the non-REIT rated universe. Backed by stable cash flows and long-
term loan structures, the DSCR is expected to be in the range of 1.15-1.25 times in FY2023.”
Click the below link to access our previous press releases on the sector:
Industrial and warehouse logistics park supply estimated at 330 million square feet (mn sq ft) by 2023 with Grade
A accounting for 48%; occupancies to remain healthy in the range of 85-90% supported by robust demand from
ecommerce and 3PL
Rental income of retail malls expected to increase by 30% Y-o-Y in FY2023
For further information, please contact:

Media Contacts:

Naznin Prodhani Shivendra Singh

Head Media & Communications
ICRA Ltd
Tel: + (91 124) 4545300,
Dir: + (91 124) 4545860
Email:
naznin.prodhani@icraindia.com
Deputy Manager - Media & Communications
ICRA Ltd
Tel: + (91 124) 4545300
Dir: + (91 124) 4545860
Email:
shivendra.singh@icraindia.com

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