Office Space Deals in Key Indian Cities Up 8 per cent in Q1 2016

The absorption of commercial real estate including outright purchases and leasing of office space in India’s top seven markets increased to 5.8 million square feet during the first quarter of 2016, up 8% from that a year ago, according to commercial data information and analytics firm Propstack.

This signals continuation of the strong revival seen last year due to renewed corporate confidence amid steady economic growth, which is an indicator of the economy’s health and augurs well for job creation.

The number of commercial real estate transactions by companies went up 23% during the quarter. The demand was led by companies in BFSI (banking, financial service and insurance), e-commerce and IT/ITeS sectors. Some of the significant deals concluded during the quarter include that of WNS in Mumbai, UBS at Pune, ADP in Hyderabad and Genpact in Gurgaon.

The office vacancy rates across the seven markets — Mumbai, Delhi-National Capital Region, Bengaluru, Pune, Chennai, Hyderabad and Kolkata — declined to 14% from 26% a year ago. Office space pickup was robust in the quarter ended March and vacancy levels also fell substantially, said Raja Seetharaman, director at Propstack.

“If the current momentum continues, 2016 could well be a record year for office space absorption in India. Commercial real estate is clearly reflecting the mood on business front and based on the pipeline for office space demand we are heading towards registering a strong year,” Seetharaman said.

The sector saw a turnaround in 2015 after witnessing a lull for over three years, recording about 35 million sq ft of office space purchases and leases in the country’s top eight property markets.

The figure was the highest since 2011, following sustained easing of rentals owing to global financial crisis. According to Propstack, most cities showed steady rental growth in the first quarter of this year, with the exception of Kolkata. While Pune led the pack in terms of rentals with an increase of 6.9%, Bengaluru was next with 5.7% while Delhi-NCR saw 2.8% growth and Chennai saw 2.6%. Mumbai saw a marginal increase of 1.2% while rentals in Hyderabad went up 1.4%.

Deals by both investors and occupiers suggest that sentiment is improving for the office property market.

Significantly, the 8% increase in absorption came without large deals of the sort seen last year. Transactions for office space of over 25,000 sq ft formed the major chunk of space absorption in Pune and Mumbai during the quarter.

In Pune, such deals accounted for as much as 64% of the total absorption volume, while in Mumbai the share was 45%. In contrast, last year had seen a pickup in large transactions, led by Flipkart, which leased 2 million sq ft of a custom-built office campus in Bengaluru and Tata Consultancy Services, which rented over 2 million sq ft of built-to-suit space at Hiranandani Estate in Thane for 15 years.

Office space demand goes down in 1Q2014

NEW DELHI: Office space absorption across Indian cities fell by five per cent, while supply declined by 34 per cent during January- March quarter as companies continue to remain cautious about their expansion plans, according to global property consultant CBRE.

"Office space demand slowed down in the first quarter of 2014, with around 6.3 million sq ft of office space getting absorbed across the leading cities as against 6.6 million sq ft in Q1 2013 -- a drop of about five per cent," CBRE said in its recent report.

An overall 6.6 million sq ft of office space was completed in the first quarter of 2014 compared to about 10 million sq ft in the corresponding period of 2013.

"Overall, the commercial real estate market in India saw sluggish transaction activity and a low level of new completions during Q1 2014. Leading cities continued to see heightened caution from corporate occupiers, resulting in subdued leasing activity during the first three months of the year. The majority of these deal closures took place for small to medium-sized office spaces," the report noted.

IT/ITeS, financial and services segments continued to drive demand for office space, the report titled India Office Market View Q1 2014, said.

As for as cities are concerned, the transaction activity was dominated by the NCR, Bangalore and Chennai -- representing about 70 per cent of the total space transacted during the quarter.

"New office space supply in the leading cities was also affected due to existing vacancy levels and lower demand," CBRE noted.

A media report quoting CBRE South Asia Chairman and Managing Director Anshuman Magazine having said: "Occupiers continue to remain focused on optimal space utilization and cost saving strategies."

Going forward, he said, the demand is likely to be concentrated mostly in the peripheral micro-markets of leading cities, owing to abundant availability of cost effective quality space options.

"The ensuing general elections and the formation of a new government are expected to affect the corporate market as well. In the short to medium term, we can expect firms in the IT/ITeS, banking/financial services and pharmaceuticals to remain key contributors to overall office space absorption across major cities," Magazine said.

"Rental values in the Central Business Districts of Bangalore, Delhi, Pune and Chennai appreciated in the range of 2-5 per cent quarter-on-quarter (q-o-q) due to increasing occupier interest in leading Grade A properties," CBRE said.

In Mumbai, feeble demand levels continued to have a negative impact on rentals across markets, with values dipping by 2-5 per cent q-o-q in Bandra-Kundra Complex, Prabhadevi, Worli and Nariman Point mainly due to existing vacancy pressures and weak occupier demand.