Slow start to 2013, office absorption drops by 37%

Chennai: It seems the downward trend in the commercial real estate in India is continuing into 2013 and if one goes by the latest report from Cushman & Wakefield, the leading Global Real Estate consultants, there has been a huge 37 per cent drop in office absorption rate in India in the first quarter of 2013 as compared to the corresponding period last year.

Bengaluru and Chennai saw a significant decline in net absorption levels followed by Mumbai and Hyderabad, the report pointed out. 

The overall leasing activity in Chennai in the first quarter remained slow in the wake of cautious expansion plan of occupiers. A few companies relocating to other micro markets and overall net absorption was recorded at only 131,412 sf, a drop of around 80% from Q1 2012. IT/BPO sector continued to be the largest contributor in absorption followed by the BFSI sector. The first quarter witnessed a total supply of approximately 950,000 sf, registering a decline of 61% over 1Q 2012.  

The overall vacancy level in Chennai has witnessed a marginal increase of 0.3% and was 15.9% from the previous quarter. The rental values across the city exhibited a stable trend. However, the weighted average rentals in the peripheral-GST micro market showed decline as leasing activity was slow because occupiers preferred to be located in the suburban-Guindy locality. 

Consequently, Guindy has registered a rise in weighted average rentals with fresh supply entering the market at higher rentals. Slowdown in leasing activity is expected to continue in the second quarter of 2013 due to prevailing cautious expansion sentiments. Going forward, rentals are expected to register a stable trend, the report noted. 

 IT/ BPO driven markets of Chennai and Hyderabad have registered a decline in leasing activities in Q1 2013 over the same period last year due to the cautious approach. 

The total net absorption across top eight cities was noted at 3.6 million square feet (msf) in the first quarter of 2013 which denoted a decline of 37% compared to the same quarter last year. However, fresh supply registered an increase of 18% y-o-y and was recorded at 7.9 msf. Vacancy rates at the end of Q1 2013 were noted at 19.6%, representing a rise of 3% from the same quarter last year. Highest net absorption was noted in Pune that also saw an exceptional increase of 30% compared to Q1 2012.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, said “As predicted, the first half of 2013 was no different from that in 2012 which recorded slow activity levels.  Corporate are cautious, the economic slowdown in global markets continues to affect global markets. Added to this, are the domestic sentiments, which are affected by active political conundrum in the run up to the 2014 general elections.”

“Further, the Union Budget for 2013-14 had very little for corporates on the whole, especially the IT/ITeS and BFSI sector, which has put many companies into watchful  mode. However, second half of 2013 is expected to witness an increase in activity which is expected to match the activity levels of 2012,” he said. 

City	Supply Q 1 2012	Supply Q 1 2013	% Age Change in Supply  (Q1 2012 / Q1 2013)	Absorption Q1 2012	Absorption Q1 2013	% Age Change in absorption (Q1 2012 / Q1 2013)	Vacancy Q1 2013
Ahmedabad	0	0.95	NA	0.10	0.19	90%	15.2%
Bengaluru	1.06	1.58	49%	1.35	0.23	-83%	14.7%
Chennai	0.95	0.37	-61%	0.65	0.13	-80%	15.9%
Hyderabad	0.49	0.018	-96%	0.63	0.45	-29%	19.2%
Kolkata	0.57	0.71	25%	0.28	0.17	-39%	22.8%
Mumbai	1.43	1.65	15%	1.29	0.81	-38%	20.10%
NCR	1.61	1.98	23%	0.77	0.77	0%	28.30%
Pune	0.58	0.64	9%	0.65	0.84	30%	22.10%
TOTAL	6.7	7.9	18%	5.7	3.6	-37%	19.64%

Source: Cushman & Wakefield Research

  “Given the current subdued economic conditions, most occupiers are cautious and have been concentrating on how to leverage current office supply to their advantage and reduce real estate cost from medium to long term perspective while simultaneously focusing on increasing the efficiency of their existing office spaces, alternate workplace strategy with remote or flexible work stations or hours,” Sanjay further said.

 

Companies that were relocated were forced to take either the same size as their previous accommodation or marginally increase the size thus contributing very little to net absorption level. Many corporate houses expressed interest in leasing larger space, but have postponed their decision for the later part of the year. Thus going forward, the transaction activities are expected to pick up with some bigger requirements anticipated to get finalized, he concluded.