Total office space take-up across the country crosses 10 million sq ft in third quarter of 2017

Moneycontrol News

Leasing activity for prime office space across key cities in India remained robust during the third quarter of 2017, crossing 10 million sq ft. Bengaluru led leasing activity, followed by Hyderabad, signaling the growing prominence of the cities as preferred destinations by corporates. NCR recorded 2.4 million sq ft of new supply year-on-year in the first nine months, says the latest India Office MarketView Report–Q3, 2017 by CBRE South Asia Pvt Ltd.

Space take-up was dominated by the IT/ITeS sector with 34 percent share of overall space leased across key cities. It is noteworthy to highlight that the share of office leasing by e-commerce firms grew from 3 percent earlier this year to 10 percent in the third quarter of 2017. Other segments that drove the demand included the engineering and manufacturing segment (19 percent), BFSI segment (10 percent), and co-working/business centres (6 percent) which is witnessing increased activity in recent months, it says.

With Europe, Middle East and African corporates (EMEA) showing an increased interest in India’s office segment, the share of office leasing from these firms was recorded at 14 percent in the third quarter of this year, up from 9 percent in the second quarter of 2017.

During the third quarter of 2017, new supply addition witnessed a marginal, quarter-on-quarter dip to reach 7.2 million sq ft during the third quarter. Delhi NCR, Mumbai and Bengaluru accounted for almost 80 percent of the supply addition followed by Chennai and Hyderabad. Leasing activity was driven by small and medium-sized transactions (less than 50,000 sq. ft.) with small-sized transactions (less than 10,000 sq. ft) comprising 40 percent of all transactions reported during the quarter, it says.

A review of the data for the first nine months of the year reveals that leasing activity continues to remain robust across the key cities. Other highlights for the segment for January-September 2017 period were: Absorption touched 29 million sq ft; marginally lower compared to same period of 2016 and new office space completion was down 3 percent year-on-year.

“India’s prime office market is evolving at a rapid pace. Occupier strategies continue to focus on consolidation/expansion as well as cost and greater flexibility of office space. The advent of co-working and shared office space formats are also influencing the market to some extent. While demand for traditional office space will continue to dominate the segment, it will have to make allowance for newer formats that are slowly gaining prominence and absorbing a part of the overall pie,” says Anshuman Magazine, Chairman–India & South-East Asia, CBRE.

Ram Chandnani, Managing Director – Advisory & Transaction Services, CBRE South Asia Pvt. Ltd. added, “Despite availability of quality, ready to move in office space remaining constrained, overall office leasing continued to be high during the quarter. The sustained interest from EMEA and US corporates highlights India’s continued preference as a destination for office space. Going forward, as occupiers continue to future proof their portfolios and hedge against future rental escalations, we can expect to witness a rise in pre-leasing of space across various cities. This shift in occupier strategy, focus on cost, and the growing prominence of alternative options like co-working spaces, could impact the demand for office space in the short-term."

In the National Capital Region, Gurgaon dominated leasing activity during the quarter. While quarterly supply addition increased, it was limited to Gurgaon primarily due to receipt of long pending completion certificates for key developments. The leasing activity was dominated by IT/ITeS corporates, followed by engineering and manufacturing firms.

In Mumbai, office space take-up was largely concentrated in PBD-Navi Mumbai, Thane, accounting for almost half of the city’s leasing activity. Supply addition witnessed in PBD-Navi Mumbai and ABD. BFSI companies continued to dominate space take-up, followed by IT/ITeS/BPO/KPO companies and rental values remained stable, says the report.

In Bengaluru, leasing activity fell marginally on a quarter-to-quarter basis, largely concentrated in non-SEZ developments. Office space demand was mainly driven by engineering and manufacturing, IT/ITeS and e-commerce firms which took up large sized spaces. Supply addition remained subdued with only Northern Bengaluru witnessing supply addition during the quarter. Co-working operators continued to be active.

In Chennai, leasing activity grew on a quarter-on-quarter basis; mainly concentrated in OMR Zone I and Mount Poonamallee Road (MPH Road). Rental growth witnessed in OMR Zone I (IT) and GST and MPH Road (SEZ). Office space demand was mainly driven by e-commerce, IT/ITeS and BFSI firms. Supply addition rose in the city on a quarter-on-quarter.

As for future trends, office leasing activity is expected to sustain in the short-term, backed by companies looking to expand or consolidate their operations. Moving ahead, occupiers will continue to keep space utilisation and innovation in workplace strategies at the forefront of their expansion plans. Demand and use of co-working spaces is expected to rise with the concept being adopted by corporates who have fluid expansion/occupation plans, says the report.

With supply continuing to remain constrained across most cities, the demand-supply gap will lead to rental growth across most peripheral and sub-urban micro-markets. Pre-commitments in projects which are nearing completion are also expected to continue in the coming months, due to the limited availability of ‘ready-to-move-in’ space in the coming quarters, it added.