Office absorption expected to be 36 msf

  • Bengaluru is expected to lead with at least 34% share in the total Grade A Net absorption, towards the end of 2015

In the latest market report by global real estate consultants Cushman & Wakefield’s the net office absorption for top 8 cities[1]  will be recorded at 36.5 million square feet (msf) by the end of 2015. This represents an increase of 18% as compared to the year 2014. Bengaluru is expected to lead with approximately 34% share in the total Grade A Net absorption, ranging between 9-12 msf towards end of 2015. Delhi-NCR and Mumbai are expected to follow with absorptions ranging from 6.4-7.1 msf and 4.8-5.7 msf respectively.

End of 2015 is also expected to witness new completions of approximately 43 msf, of which about 42% of this supply has already come in by Q2 2015. The overall supply is expected to increase by 24% from last year. While Kolkata’s supply is likely to increase by at least 5 times as compared to the supply in 2014, Pune will witness over twice the supply of 2014 and Chennai a 26% increase. All cities except Hyderabad and Mumbai will see positive growth in supply in 2014.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, said 2015 is expected to be one of the best years for office absorption in recent times propelled by steady growth in the economy and renewed corporate confidence. The absorption trend in the first half was largely driven by the IT/ ITeS, Ecommerce and Outsourcing companies that are witnessing accelerated growth. Going forward this year will see many companies from these sectors further commit to larger spaces. Interestingly several new start-ups which are in growth mode will create considerable demand, helping office space absorption to remain strong”


First half of 2015 (Jan –Jun’2015) saw the top eight cities of India recording overall net absorption[2] of 17.9 million square feet (msf) for office spaces, a 32%  increase  over the first half of 2014. Regained expansion momentum, mainly in the IT-ITeS sector resulted in highest percentage increase in office space net absorption in Bengaluru (174%) and Pune (162%) over the same period last year. However, Delhi-NCR recorded a 38% decline in half yearly net absorption over H1 2014. Other markets such as Ahmedabad (59%) and Hyderabad (19%) too noted a sizeable decline in net absorption over the same period. Additionally, in H1 2015 nearly 21 msf new supply was infused across the top eight cities, which is 20% higher than what became operational during H1 2014.




During the first six month of 2015, Ahmedabad witnessed only 0.2 msf supply, registering a 78% decline compared to the same period last year. The drop in supply is largely attributed to no new completions in the second quarter of this year as most projects got deferred to the latter half of the year. Since majority of office space absorption took place in new Grade A developments, decline in supply also slowed down net absorption by59% over the first half of 2015 to 0.3 msf. Of the total net absorption in H1 2015, Grade A spaces comprised nearly 97%. In contrast, the net absorption for Grade A spaces in H1 2014 remained 79% of the total absorption volume. During the first six months of 2015, relocations and consolidations too reduced by 80% over H1 2014 mainly due to no relocations and renewals during the first quarter of this year.  City level vacancy increased by 0.3% percentage point on year-on-year (y-o-y) basis to 18. 5% due to limited transaction activity on the back of modest Grade A supply. The latter half of H1 2015 recorded the first pre-commitment of 2015 as 30,000 sf was leased by a telecom company in a Grade A development along S.G. Highway. Rentals continued to maintain status-quo across submarkets amidst higher vacancies and modest transaction activity.


In the first half of 2015, Bengaluru witnessed total supply of 5.9 million square feet (msf); almost twice the supply infusion witnessed during the same period in 2014. Nearly all supply during the first half of both years comprised of Grade A spaces. In H1 2015, nearly half of new supply was concentrated in the Outer Ring Road submarket, followed by Peripheral South (17%) and Suburban South (14%) At 8.5 msf, the total leasing activity during H1 2015 surpassed the same by 71% in H1 2014. In a trend similar to first half of 2014, Grade A leasing in H1 2015 constituted 90% of the total transactions; 74 % of which belonged to IT-ITeS sector.  Gross absorption by the IT-ITeS sector remained at par with levels witnessed during H1 2014 with only a marginal dip of 1.5 percentage points in H1 2015. The share of e-commerce companies in the total leasing also remained at par with levels witnessed last year indicating steady demand.  . The first half of 2015 witnessed total net absorption of 6.9 msf; nearly 2.5 times the net absorption noted in the same period in 2014. However, pre-commitments during the first half of 2015 declined by 3% over H1 2014 to 1.88 msf. Overall vacancy, too, declined by 2.2 percentage points from H1 2014 and was noted at 11.36% at the end of June 2015 owing to strong leasing amidst healthy supply. Largely, weighted average rentals appreciated in most submarkets, with a few exceptions. Peripheral North witnessed a rental increase of over 30% due to demand spill over from nearby IT destinations which had limited availabilities. Given the continued high demand and low vacancies in Outer Ring Road and Peripheral East submarkets, marginal rental appreciation can be anticipated in the short term.


H1 2015 witnessed significant number of project completions leading to 164% increase in new supply as compared to the supply levels witnessed in the first half of last year. Nearly 1.3 msf new supply became operational this year, 70% of which was on account of a new block of an IT Park in Suburban South. Strengthening demand on the back of expansions, mainly in the IT-ITeS and BFSI sectors contributed to nearly 1.3 msf of net absorption, 51% of which was noticed on the IT corridor (both Suburban South and Peripheral South submarkets). Both leasing and net absorption remained at par with levels witnessed during the first half of 2014 due to steady demand emanating largely from IT-ITeS sector. Vacancy levels at the end of June 2015 were noted at 14.40%, 0.5 percentage points higher than the levels witnessed in H1 2014. This is primarily due to high supply influx this year. Rentals largely remained stable over the last year. Going forward, the second half of the year is expected to witness high supply infusion which may keep vacancy levels at par with levels witnessed in the first half of 2015.  


In H1 2015, Delhi-NCR witnessed new supply infusion of nearly 4.94 msf of office spaces compared to 4.76 msf in the same period last year. Whilst commercial spaces (55%) witnessed the highest new supply in 2015 so far; IT developments contributed 15% share. IT-SEZ developments as a proportion of total in new supply increased to 30% in H1 2015 compared to 11% in H1 2014. Submarket-wise, Gurgaon continued to witness the highest completions followed by Noida and Delhi. At 1.93 msf, net absorption in H1 2015 declined by over 38% from the same period previous year due to high number of relocations and consolidation by occupiers this year. In H1 2015, IT-ITeS (32%) continued to be the highest contributor in office leasing followed by e-commerce (21%) and BFSI sector (10%) companies. The submarkets of Gurgaon CBD and Noida witnessed the highest increase in weighted average rentals. In Gurgaon CBD, strong demand and limited availability led to rentals increasing by over 51% in H1 2015 compared to the same period previous year. Noida witnessed increase in rentals by over 22% primarily due to infusion of new supply at premium locations commanding higher rentals.


Hyderabad witnessed an overall supply of 1.5 million square feet (msf) this quarter; which was only 59% of the total supply that came in H1 2014. Nearly 45% of the new supply that became operational during this year belonged to Grade A developments. Overall leasing witnessed an 8.5% decline from H1 2014 and were recorded at 2.8 msf. Grade A leasing activities were fewer in the first half of 2015 and was noted at 1.3 msf; a 45% decline from H1 2014. Fewer new leases and increased relocations resulted in an overall net absorption of 1.88 msf; a 19% decline from H1 2014. Both Madhapur and Gachibowli witnessed maximum leasing and contributed nearly 76% in the first half of 2015 indicating steady demand from IT-ITeS sector. Whilst total pre-commitments during H1 2014 amounted to 0.77 msf; H1 2015 noted only 34,000 sf pre-commitments in H12015. Weighted average rentals across most submarkets largely remained at par with the first half of the previous year. Only Suburban (Madhapur) witnessed a 5% increase in the Grade A weighted average rentals owing to high demand and limited availability of space. The overall vacancy declined by 1.2% percentage point to 16.6% owing to absorptions amidst limited supply. Nearly 6.3 msf of supply is anticipated in the next two quarter of 2015; only 33% of which is expected to be Grade A development. Out of the total future supply, nearly half is expected in Gachibowli and Madhapur Suburban submarkets. Moderate leasing activities within this new supply may cause an increase in vacancy. Rentals are expected to maintain status quo across all submarkets in the short term. 


In Kolkata, the commercial office sector witnessed a total of nearly 411,500 sf of supply in H1 2015; 67% higher than the same period a year ago. However, Grade A supply during H1 2015 was only 169,000 sf, which was solely Non-IT and was concentrated in CBD and Park Circus Connector submarkets. This was primarily on account of continued deferment of a few large IT projects especially in Salt Lake submarket, owing to slow pace of construction activity amidst high vacancy levels and subdued demand.  The first half of 2015 witnessed total net absorption of about 375,800 sf, an increase of about 6% over the same period in the previous year. Overall, the demand remained subdued during the first half of this year too as major companies from IT-ITeS sector which used to be the dominant demand driver, have not expanded/started their operations in the city through leasing route. Salt Lake submarket had the highest share (69%) in total net absorption, followed by Rajarhat and CBD submarkets with 25% and 13% share respectively. Companies from engineering sector accounted for over 34% of overall leasing activity during H1 2015. In contrast, IT-ITeS sector which held highest share (39%) of leasing during H1 2014, declined to 14% during the first half of 2015. Overall vacancy levels at the end of June 2015 were 33.2%, a marginal decline of 0.6 percentage points over H1 2014. Weighted average rentals across submarkets dropped by 1% - 5% amidst subdued demand and elevated vacancy levels. 


During the first half of 2015, Mumbai recorded total of nearly 2.5 msf supply with 83% contribution from Grade A developments. Influx of new supply in H1 2015 dipped by nearly 15% compared to the same period last year largely due to deferment of major phased completion to latter half of the year. Net absorption during the first six months of 2015 summed up to approximately 2.1 msf; 8% higher than the same period last year. The increase in net absorption can be attributed to sizeable activity witnessed in the first quarter of 2015 and a lot of pre-committed spaces being absorbed in a major project completion in Q2. In line with H1 2014, preference for premium spaces kept net absorption levels unchanged at almost 89% of total net absorption in H1 2015 too. Leasing activity in the first six months of this year  was significantly higher at 2.85 msf, as compared to 2.1 msf for the first half last year. The significant improvement in leasing but marginal increase in net absorption indicated the growing trend of relocations and consolidations by major occupiers within the city.  City level vacancy was noted at 18.8% by the end of first half, 1.6 percentage points higher compared to first half of 2014 mainly due to high infusion of supply and comparatively lower transaction activity during the intermediate months. Weighted average rentals increased marginally across submarkets due to increase in quoted rentals of certain buildings witnessing higher demand. 


During H1 2015, new supply infusion in Pune was recorded at 4.2 msf with 83% contribution from Grade A developments. Supply increased by more than double from the same period last year due to the major completions in the second quarter of 2015, mainly in Peripheral-West and Suburban-West quadrants of the city. Sizeable transaction activity amounting to more than 4 msf coupled with vibrant absorption of pre-committed spaces in the second quarter of 2015 summed up to total net absorption of close to 3.2 msf; 126% higher than the same period last year.  Availability of sizeable Grade A spaces in the form of new supply resulted in Grade A developments constituting 88% of total net absorption this year. Leasing activity till second quarter of 2015 was significantly high at 4.1 msf, 150% higher as compared to first half of last year. Relocations and consolidations by major occupiers within the city kept net absorption to remain moderate even though transaction activity remained healthy.  On an overall basis, vacancy levels were noted at 20.9% by the end of first half of 2015, 4.9 percentage points lower than that noted at the end of same period last year. Grade A weighted average rentals increased by 20% from the first half of 2014 due to higher quoted rentals for certain submarkets.

[1] Ahmedabad, Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune

[2] Net absorption refers to the new / additional occupation activity and includes only the incremental new space take-up in instances of relocations and expansion from within the city; does not include lease renewals and relocations to same sized office spaces.

#City wise vacancy at the end of June 2015.

**City wise numbers rounded off to the nearest 10’s