Drop In Absorption By 15% In First Half (H1) Of 2013 Compared To Same Period Last Year: Cushman & Wakefield

Office markets in India registered a downward trend in absorption in the first half of the year (Jan – June 2013), as revealed in the latest report by Global Real Estate consultants, Cushman & Wakefield. The total net absorption[1] across top eight cities[2] in H1 2013 was noted at 10.9

million square feet (msf) which denoted a decline of 15% compared to the same period last year.  

Slower economic growth led to the decline in expansion by companies as cautious sentiments continued since the beginning of the year. While the skepticism was very apparent in the first quarter of the year, the second quarter saw a marked improvement in the total office space absorption.

During H1 2013, Mumbai recorded the highest net absorption of 2.4 msf, which however was lower by 10% compared to same period last year. Bengaluru and Pune followed Mumbai with respect to net absorption in H1 2013 which was recorded at 1.8 msf and 1.7 msf respectively. Although, Bengaluru saw a decline of 22% in net absorption compared to 1H 2012, it however, witnessed seven fold increase in absorption in Q2 2013 as compared to last quarter. Chennai and Pune recorded positive growth in net absorption in H1 2013 compared to same period last year by 6% and 37% respectively.  Kolkata (-52%) and NCR (-42%) followed by Ahmedabad (-21%) registered the highest decline in absorption which were recorded at 0.49 msf, 1.42msf  and 0.27msf respectively.

Q2 2013 (Apr – June) recorded a total absorption of approximately 7.2 msf which was higher marginally higher than the same period last year. It was however the dismal performance of the Q1 2013, recorded at 3.6 msf recording a decline of over 36% y-o-y, which led to the overall decline in total absorption for the first half of the year.

Similarly, fresh supply during H1 2013 also declined by 3% and was recorded at 17.6 msf. Vacancy rates at the end of Q2 2013 were noted at 19.6%, an increase of 1.7 percentage points over the same period last year.

Also, there was increase in pre-commitments in the second quarter of 2013 which was registered at approximately 2.65 msf in Bengaluru, Hyderabad, Mumbai and Pune.

Net absorption refers to the new leasing activity within the city and includes only the incremental new space take-up in instances of relocations and expansion from within the city. It does not include lease renewals and relocations to office spaces that have the same areas.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “The office real estate market has been able to keep afloat in the midst of the negative market sentiments, which include poor GDP growth projections, depreciating value of Rupee against dollar, political volatility and continued unrest in the global economic conditions. Even while absorption registered de-growth of 15% year on year, the second quarter of 2013 has outperformed on both accounts of year- on – year as well as quarter -on – quarter, indicating an existing strain of growth that is still visible amongst the corporate world. Even though corporate have been cautious in their expansion, the trend has been positive, albeit slow. By the end of the year office space absorption is expected to be at approximately 30 msf with markets such as Bangalore Pune and Mumbai leading the trend.” 


Net absorption recorded a decline in the first half of 2013 compared to 2012 by 21% due to lower demand for office space at 0.27 msf. The city witnessed net absorption of approximately 81,000 sf during the second quarter, majority of which were in Grade A developments. In-spite of the lower demand, supply has increased substantially in the first half of 2013. This has resulted in the overall vacancy levels increasing by over 5 % since 2Q 2012.  No new supply were witnessed during the quarter resulting in vacancy rate declining very marginally by 0.5 percentage point to 14.7%. Over supply in S.G. Highway and Prahladnagar resulted in rental values decline by 2-3% during the quarter. Rentals at C.G. Road and Ashram road continued to remain stable due to low leasing activity. However, large amount of upcoming supply is expected to put additional pressure on rentals at S.G. Highway as vacancy levels are expected to increase further.


While, the net absorption in H1 2013 registered a drop of around 22% to H1 2012, in Q2 2013  absorption was recorded at 1.6 msf, nearly seven times than the previous quarter due to certain pre-commitments getting absorbed (around 50% of the net absorption) and expansion by certain companies in the manufacturing and Online retail categories. The market exhibited signs of healthy demand with pre-commitments adding up to approximately 1.9 msf unlike previous quarter where there were none. Outer Ring Road being a preferred location with its proximity to residential catchments and good connectivity to central and suburban regions witnessed around 74% of the total pre-commitments. The city witnessed an addition of 1.6 msf of fresh office space in Q2, which remained in similar range as of the first quarter. Outer Ring Road continuing to be a favored workplace location also saw 94% of the total supply. The first half of the year again saw a drop of approximately 34% in supply in comparison to same period last year. Overall vacancy was recorded at 14.5%, a slight dip of 0.2 percentage point from the last quarter.

Rentals across the markets remained in similar ranges with exception of suburban micro-market, which experienced rise in rentals in wake of healthy demand for second generation spaces by IT-BPM companies. Observing the quantum of RFPs getting floated in the market, leasing activity is expected to see an uptrend going forward. Further, the rentals are expected to hold on to their current levels in short to midterm.


Half yearly net absorption figures for 2013 registered a rise of nearly 6% versus H1 2012. Q2 2013 on the other hand saw absorption of 1.4 msf, a huge increase over Q1 2013, with most of the leasing transactions in the Grade A commercial office spaces with the IT sector continuing to be the major demand driver followed by the BFSI sector. Overall vacancy levels increased marginally by 0.8 percentage point over the previous quarter, however vacancy for Grade A office stock increased by 1.2 percentage points due to huge influx of new supply in Suburban Perungudi-Taramani location that also lead to dip in rentals of the micro-market. Healthy demand scenario is expected to continue in the coming months which will reflect in weighted average rentals in select locations that may see an upward increase.      

In the second quarter of 2013 approximately 2.4 msf of new office space came into supply which is more than six times compared to previous quarter. Of which, more than 95% came into the Suburban Perungudi – Taramani micro-market and catered mainly to IT-BPM companies owing to its attractiveness as an IT corridor and proximity to other parts of the city. Meanwhile, the first half of the year saw a rise of approximately 55% compared to same period last year.


The net absorption for Hyderabad in H1 2013 reduced by 4% compared to H1 2012. Hyderabad witnessed a net absorption of nearly 755,000 sf during Q2 2013. Although the net absorption was almost 50% more than the previous quarter, 65% of it was already pre-committed. There were few pre-commitments amounting 355,000 sf in the quarter. The city witnessed fresh office space supply of 960,000 sf, 52% of which were IT developments and nearly 14% were IT SEZs. Further, H1 2013 supply was noted nearly 32% less in comparison to H1 2012. Overall vacancy was noted at 17.2% with a drop of around 0.3 percentage point from the previous quarter. Further, vacancy in Grade A properties in Suburban (Madhapur) location registered a drop to a sub 2% level given strong occupier preference due to its proximity to residential catchments and good connectivity to central and suburban areas. Going forward, the vacancy levels for Grade A properties are expected to decline since most of the upcoming supply is already pre-committed. The rentals are expected to register a stable trend apart from Suburban (Madhapur), where rentals may go upwards due to sustained demand for quality spaces. 


Kolkata recorded absorption of 315,000 sf during the second quarter of 2013 which was 80% higher on sequential basis, however; it has dropped by 52% during the first half of calendar year 2013 as compared to the same period a year ago that saw some big ticket transaction of areas 75,000 sf and above.. The demand continued to be driven by the IT/ITeS sector followed by BFSI and Engineering and Manufacturing sectors.. The econd quarter saw a 50% drop in supply which was noted at 331,000 sf in Rajarhat and Park Circus Connector micro markets. The overall vacancy levels remained stable and stood at 22.8%, however, Park Circus Connector micro market witnessed an increase in vacancy level which moved to 24.3% against 14.1% noted in previous quarter due to infusion of new supply. A marginal decline in weighted average rentals was noticed across all micro markets with peripheral locations such as Salt Lake witnessing higher decline due to rise in vacancy levels. In the coming quarter rentals are expected to increase in Park Street and Camac Street, whilst rentals in Sector V Salt Lake and Rajarhat micro-markets are expected to witness a drop owing to increase in vacancy levels with infusion of new supply. 


Overall net absorption for the first half of 2013 stood at 2.4 msf the highest across India, however still witnessed a decline of approximately 10% compared to the first half of 2012. The city witnessed a net absorption of 1.62 msf and increase of 16% from the same quarter last year and twice the previous quarter.

Supply during H1 2013 witnessed a decline of 7% compared to the H1 2012. However, supply during the quarter stood at 2.2 msf an increase of 46% compared to the previous quarter concentrated in Andheri and Thane-Belapur Road where the city witnessed a fresh infusion of SEZ supply. The high supply resulted in Grade A vacancy to increase to 22.1%. The only locations to record some changes in rentals was Powai where rentals appreciated by 6% due to low availabilities and Worli which registered a decline by 4% with landlords reducing rentals to induce tenants. With quality developments available at attractive pricing, investor interests in commercial office developments have increased with a few significant deals in the pipeline.

National Capital Region

NCR saw a significant decline in absorption in H1 2013 over the same period last year of over 40%. Similarly, Q2 2013 absorption witnessed a decline of 17% compared to the previous quarter and was noted at 0.65 msf as occupiers remained cautious towards expansion and new space take-up. Besides IT/ITeS and BFSI, telecom sector also witnessed healthy leasing activity during the quarter thus contributed significantly to the total absorption.

A total supply of 1.89 msf was registered during the quarter, a q-on-q decline of approximately 4%. Both supply and leasing activity in H1 2013 marginally increased by 1% compared to the same period last year. The supply mainly constituted of commercial and IT buildings with no SEZ addition during Q2 2013. With slow supply additions and decline in leasing activity, the overall vacancy rate remained stable during the second quarter. Out of approximately 2.3 msf of Grade A supply which is expected to get added in the next quarter, 89% belongs to Gurgaon which is likely to take the vacancy levels of the micro market northwards. The industry wide cautious sentiment is expected to continue in the third quarter of the year with occupiers likely to evaluate relocation and expansion plans within NCR.


Beating the national trend, Pune recorded an increase of 37% in absorption of office space in H1 2013 over H1 2012, with consistent levels of absorption being achieved in both quarters of the first year in 2013. In the second quarter of 2013, Pune witnessed a total supply of approximately 364,000 sf, out of which the entire grade A supply of 253,000 sf was contributed by a significant Grade A project completion in Extended Suburban submarket. Q 2 2013recorded net absorption at approximately 849,500 sf depicting an increase of less than 1.5% q-o-q and  approximately 46% increase in net absorption compared to Q2 2012.. Overall vacancy levels declined by 0.4 percentage point while the Grade A vacancy dropped by 0.5 percentage point to 20.2% compared to Q1 2013 due to increase in leasing activity and decline in supply. Majority of the activity was concentrated in the Grade A buildings of the Peripheral and Suburban markets.

The rentals values remained stable depicting an overall increase of 2.3% q-o-q. Around 2.98 msf of supply planned for Q2 2013 got deferred and is expected to come in the next quarter. Inspite of the large anticipated increase in the inventory, which might exert an upward pressure on the vacancy levels, the rentals are expected to remain stable due to availability of good quality spaces at relatively cheaper rates in some submarkets of the city

[1] Net absorption refers to the new leasing activity within the city and includes only the incremental new space take-up in instances of relocations and expansion from within the city. It does not include lease renewals and relocations to office spaces that have the same areas.

[2] NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad, Kolkata, Ahmedabad