In the latest market report by global real estate solutions company Cushman & Wakefield, net absorption for the first 9 months of 2017 has been recorded at approximately 18 million square feet (msf), registering a marginal decline of 7 % year – on – year (y-o-y) across the eight major cities of India. The trend for office space absorption has been looking positive despite a seeming slowdown in the early part of the year 2017. Chennai saw a growth of net absorption of 60% y-o-y. Bengaluru continued to register the highest volume of transaction with approximately 5.0 msf of net absorption, while Hyderabad registered the second highest volume of net absorption at 3.2 msf, albeit both registering a decline from the same time last year.
The Chennai market witnessed robust activities in the last few quarters registering a steady growth q-o-q due an increase in interest from occupiers. Availability of quality office stock as well as lower rental values. Chennai gives the added benefit to occupiers of a rife talent pool in the area. Absorption in Chennai has been led by sectors such as E-commerce, IT/ BPM and BFSI for processing units. As a result of this positive trend in office absorption, Chennai has seen a significant drop in vacancy bringing it down from 15% in 2015 to 9% in 2017. Bengaluru on the other hand, has been witnessing inadequate office space supply, which has been restricting the uptake of office space, leading to a decline of 17% y-o-y. On a positive note, new inquiries for fresh space for growth and new offices have picked up in the third quarter, unlike the previous quarters where the focus on many large occupiers was on consolidation and/or relocation.
Mumbai has emerged as the most stable market from net absorption perspective in 2017 registering total net absorption of 2 msf in 2017 YTD. The market has been receving steady demand from sectors such as IT/BPO, consulting, BFSI, healthcare and media that have been looking at growth within the city. Delhi NCR too saw a manageable decline of 3% y-o-y in the YTD net absorption despite a drop in supply of office space.
Anshul Jain, Managing Director, India, Cushman & Wakefield, “We have entered the second half of 2017 with a positive outlook, and have seen occupiers absorbing and pre- committing greater volumes of office spaces. Almost 30% of the total net absorption for YTD 2017 took place in the third quarter of the year and going by the previous years’ trends, another 30 - 35% is expected to be recorded in the last quarter of the year. Hence, we expect to see close to – 12-14 msf of additional net absorption in Q4 2017. This means that 2017 remains on track to record net absorption similar to last year at around 30-32 msf.
The supply for office space has been greatly constricted in India with a drop of 38% being registered in the top eight markets of India. Almost all cities (exception of Kolkata) saw a decline in commercial office supply. Mumbai (56%), Pune (51%) and Chennai (47%) have been witnessing a slow development and construction due to numerous reason ranging from general delays in construction to lack of clarity from the market trends. Even Bengaluru recorded its lowest quarterly supply in last 2 years at less than 1 msf in the third quarter this year.
Anshul Jain, Managing Director, India, Cushman & Wakefield, “Restricted supply in the markets should be viewed positively as it reduces the chances of oversupply in the markets. Given that Indian commercial office sector is reactive and gets majorly impacted by changes in the international business environment, the restrictive supply also forms a safety net for the developers as rents are maintained. To counter the slowdown in supply and hedge against high rental spikes, most occupiers are pre-committing upcoming supply. Further, the present demand-supply dynamics also bodes well for most large developer-landlords as they are able to offload some of their stake to institutional investors at better valuations as the interest of such investors in revenue generating assets continues to grow. We feel that similar to net absorption, the total supply for the top 8 Indian cities will remain stable like the last year".
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