H1 2017 RECORDS 12.5 MSF OF NET ABSORPTION LOWER BY 11% Y-O-Y

Total net absorption in H1 2017 (January – June 2017) closed at a deficit of 11% from the same time last year and was recorded at 12.5 million square feet (msf). Chennai was the only market among top 8 cities to register a year – on – year  (y-o-y) growth of over 110% in H1 2017. All other cities registered an y-o-y decline in net absorption in H1 2017 due to a slow start in Q1 2017.

Of the total net absorption in H1 2017, over nearly 57% percent was recorded in the second quarter of 2017. (April – June 2017). Tapering supply has largely been responsible for the slowdown of net absorption in 2017, though there are some active enquiries by occupiers for consolidation/relocation of their office spaces hinting towards a healthy leasing activity by end of the year.

Anshul Jain, Managing Director, India, Cushman & Wakefield“Leasing activity has gathered pace in the second quarter owing to large transactions by IT-BPM and BFSI occupiers. Despite headwinds and cautious stance by IT-BPM occupiers, the IT-BPM sector continues to be the primary demand driver. Limited availability of quality supply has encouraged occupiers to pre-commit office spaces resulting in a significant increase of about three times in such activity; primarily driven by IT-BPM and healthcare sectors in Hyderabad, Gurgaon and Bengaluru.

Supply for the first half of the year recorded a decline of close to 50% as compared to last year with almost all markets experiencing a slowdown. Total supply was recorded at approximately 10 msf in H1 2017. Chennai being again the only exception to this saw an increased supply of 32% Y-o-Y. This lack of supply has been a critical reason for the slowdown in uptake of space in the first half of 2017. 

Anshul Jain further continued, “As the dust settles on the geo- political and economic upheavals across the world along with some ground changes such increased supply of office space, we are expected to see a healthy net absorption of close 32 – 35 msf by end of the year. Further with a pre-commitments of close to 6 msf, we can expect the momentum of absorption to continue."


NET ABSORPTION (in msf)

 

Cities

Q1 2016

Q2 2016

Q1 2017

Q2 2017

% CHG - QOQ

% CHG – HALF YRLY YOY

Ahmedabad

0.2

0.18

0.1

0.2

132%

-24%

Bengaluru

3.4

1.1

1.2

2.1

75%

-28%

Chennai

0.2

0.4

0.8

0.6

-25%

113%

Delhi-NCR

0.7

1.3

0.7

0.9

31%

-22%

Hyderabad

1.2

1.7

0.9

1.8

102%

-7%

Kolkata

0.1

0.3

0.1

0.1

-3%

-46%

Mumbai

0.5

0.8

0.5

0.8

47%

-3%

Pune

0.6

1.3

1.2

0.6

-47%

-4%

Total

7.0

7.1

5.5

7.1

30%

-11%









 


SUPPLY (in msf)

 

Cities

Q1 2016

Q1 2016

Q1 2017

Q2 2017

% CHG – QOQ

% CHG – HALF YRLY YOY

Ahmedabad

0.8

1.9

0.5

0.0

NA

-83%

Bengaluru

4.2

0.8

1.5

2.3

50%

-23%

Chennai

0.0

0.3

0.1

0.2

136%

32%

Delhi-NCR

2.5

0.2

0.9

0.7

-20%

-41%

Hyderabad

1.9

2.0

0.5

1.5

214%

-50%

Kolkata

0.5

0.04

0.0

0.01

NA

-98%

Mumbai

0.9

1.7

0.2

0.5

114%

-72%

Pune

0.9

1.5

1.0

0.3

-66%

-45%

Total

11.6

8.5

4.7

5.5

18%

-49%



CITY SPECIFIC TRENDS

HYDERABAD: NET ABSORPTION DOUBLED; TRANSACTIONS BY BFSI OCCUPIERS INCREASED

In the last 2 years Hyderabad has seen a growth story with the city performing well in a lot of aspects. The availability of talent, good infrastructure, and a stable government are lifting business sentiment and driving companies to set up offices and expand. Net absorption doubled in Hyderabad over the quarter at 1.8 msf. Large transactions (100,000 sf and above) increased significantly by 49% over the quarter led by BFSI and IT-BPM occupiers.

Although majority of leasing activity was noted by IT-BPM occupiers, leasing by BFSI occupiers increased by 58% compared to previous quarter. Foreseeing limited availability of space and rental escalations, there have been consistent pre-commitments since last eight quarters. The quarter noted pre-commitments of 1.3 msf by IT-BPM occupiers.  Supply improved significantly at 1.5 msf compared to 0.5 msf last quarter, majority concentrated in Madhapur and mainly in IT-SEZ developments.

Going forward, the city is set to outperform the rest of India, with rents in this market expected to rise over 25% through 2019 on the back of robust take-up levels. Additionally, companies are drawn to Hyderabad’s affordability compared to Bengaluru and other tech cities. Occupancy costs are about 25% lower compared to Bengaluru and are expected to remain in the range of 20-25%, even as rents set new records until 2020-2021. While Bengaluru remains the main hub for BPO and information technology (IT) industries, the volume of new supply is set to decline in Bengaluru and thus limit future take-up levels.

Veera Babu, Managing Director, Hyderabad, Cushman & Wakefield, “Hyderabad has certainly turned the corner over the last 2-3 years. Pro-industry policies, addressing necessities like power, water, housing, and infrastructure and streamlining approvals processes etc. suggest a positive change. We expect a total of 35+ million sf. (msf) of new office projects to be completed over the next 3-4 years.”

BENGALURU: LEASING ACTIVITY OF NON-IT-BPM OCCUPIERS INCREASE

Net absorption increased by 75% over the quarter and was noted at 2.1 msf in Q2 owing to a number large transactions (100,000 sf and above) by IT-BPM occupiers. Interestingly the share in leasing activity by non-IT-BPM sectors increased significantly to 50% from 24% in Q1 led by e-commerce and BFSI occupiers. Despite 2.3 msf of new supply completed in Q2, vacancy levels remain slightly below 8% and occupiers in Healthcare and IT-BPM sectors continue to pre-commit spaces. 

CHENNAI: DEMAND FROM IT-BPM OCCUPIERS CONTINUED TO BE BUOYANT

Net absorption declined by 25% over the quarter and was noted at 0.6 msf. Demand continued to be led by IT-BPM sector at 65% of total leasing activity. New completions improved to 0.24 msf, doubling over the previous quarter. The forthcoming quarter is expected to witness 1.1 msf of new supply, primarily in South Chennai. About 40% of this upcoming supply will comprise of IT-SEZ developments, 80% of which is pre-committed, indicating the buoyant demand for IT-SEZ space in the city. Vacancy rates were recorded at 9.3%, recording a marginal decline owing to limited availability of space amid steady occupier demand.

MUMBAI: THANE-BELAPUR ROAD CONTINUES TO SEE HEIGHTENED DEMAND

Net absorption witnessed strong growth of 47% over the previous quarter to 0.8 msf, despite the absence of large transactions as most were restricted upto 50,000 sf. The rise in net absorption was mainly led by heightened activity in the submarket of Thane-Belapur Road, which saw increased demand from IT-BPM, BFSI and Consulting occupiers. The submarket also high pre-commitments of nearly 0.6 msf during the quarter from IT-BPM and BFSI occupiers.  New supply doubled to 0.5 msf; comprising of IT developments. Overall vacancy levels marginally declined and stood at 15.2%.

PUNE: NOTABLE SPACE PRE-COMMITTED BY IT-BPM & E-COMMERCE OCCUPIERS

Net absorption dipped significantly by 47% over the quarter to 0.6 msf due to limited supply addition of 0.3 msf, a 66% decline from the previous quarter. Pre-commitments noted during the quarter stood at 0.26 msf by e-commerce and IT-BPM occupiers.

AHMEDABAD: DECLINE IN OVERALL VACANCY LEVEL OWING TO INCREASE IN ABSORPTION AND NO NEW SUPPLY

Net absorption was recorded at 0.2 msf during the quarter, increasing significantly over the last quarter. Majority of the net absorption was noted in the submarkets of Satellite/Prahladnagar (40%) and S.G. Highway (34%). S.G. Highway continued to contribute to majority of the leasing activity; wherein IT-BPM companies accounted for 24% of the total leasing. Overall vacancy levels declined by 1.0 percentage point from previous quarter and stood at 24.8% owing to increase in absorption and no new supply.

DELHI-NCR: GURGAON CONTINUES TO SEE MAJORITY ACTIVITY

The city witnessed a sharp increase of 31% in net absorption at 0.9 msf in Q2. Gurgaon continues to constitute majority share (70%) in net absorption. However, leasing activity in Noida saw notable increase over the quarter led by IT-BPM sector. The sector constituted majority share of 34% in overall leasing followed by Consulting at 12%, Engineering & Manufacturing at 9%. Co-working space providers also had a 7% share in total leasing in the NCR. The non-CBD markets of Gurgaon observed the only supply addition of 0.7 msf during the quarter, 20% lower than the previous quarter. Healthy absorption levels and limited infusion of supply resulted in marginal decrease in vacancy levels by 0.4 percentage points to 27.3%. The quarter noted significant increase in pre-commitments at 1.2 msf by IT-BPM occupiers in Gurgaon.

KOLKATA: ADEQUATE AVAILABILITY PROMPTS LEASE RENEGOTIATIONS IN SALT LAKE

High vacancy levels of around 30% has limited the infusion of new supply, which stood at just 14,000 sf in Q2. Net absorption in the city has been declining too over last four quarters and was noted at 0.1 msf depicting a 3% quarterly decline. Adequate availabilities at competitive rents have prompted occupiers, who are locked-in at higher rentals, to renegotiate their existing rentals or explore alternative spaces in the Salt Lake submarket.


For more information, contact:

Ashwathi G. Athilat, Sr. Manager, Marketing & Communications

022-6771 5555 | ashwathi.athilat@ap.cushwake.com

Siddhart Goel, Sr. Director, Research Services

(080)-4045 5506 | siddhart.goel@ap.cushwake.com