OFFICE LEASING BY IT-BPM COMPANIES DOWN 30% IN Q1 2018 ; SECTOR LOSES SHEEN BUT RETAINS TOP SLOT IN LEASING – Cushman & Wakefield Research

OFFICE LEASING BY IT-BPM COMPANIES DOWN 30% IN Q1 2018 ;

SECTOR LOSES SHEEN BUT RETAINS TOP SLOT IN LEASING – Cushman & Wakefield Research

  • Healthcare and Pharmaceuticals sector’s leasing increased 7-fold from Q1 2017
  • BFSI sector’s leasing rose 32% from Q1 2017 to 0.8 msf
  • IT-BPM sector’s share in total leasing fell to 37% share in Q1 2018 from 46% in Q1 2017
  • Strong demand and limited supply send rentals soaring in Bengaluru and Hyderabad

India, April 16, 2018: The IT-BPM sector, which continues to lead leasing activity, recorded 30% lower uptake of office space in Q1 2018, as compared to Q1 2017, according to international property consultants Cushman & Wakefield. Companies from the IT-BPM sector leased lower space at approximately 2.7 million square feet (msf) across the top eight cities[1] in Q1 2018, partly due to subdued fresh hiring in the sector that is currently operating in a challenging environment.

The IT-BPM sector’s share in total leasing declined to 37% in Q1 2018 from 46% in Q1 2017. This substantial drop in share comes at a time when the IT-BPM sector is grappling with challenges on several fronts, ranging from protectionist policies in countries such as US, advent of robotics and Artificial intelligence (AI), and lower IT spending. During the quarter, IT companies leased smaller offices at an average of 23,000 sf, from an average of 35,000 sf in Q1 2017. Bengaluru, which has the numero-uno position in the technology space, recorded 36% lower leasing by IT-BPM companies, while IT-BPM companies’ leasing declined by 16% in Hyderabad. Although IT-BPM leasing was slow during the first quarter, the market is likely to witness healthy leasing by certain large MNCs that have won significant business orders.

In Q1 2018, the healthcare and Pharmaceutical sector overtook the BFSI sector to emerge as the second highest lessor of office space, trailing behind the IT-BPM sector. Healthcare and Pharmaceutical sector’s leasing increased seven-fold from Q1 2017 to approximately 1 msf, with both international and national developers taking up larger offices during the quarter. Bengaluru accounted for the highest share in the sector’s leasing, followed by Hyderabad and Mumbai. The BFSI sector’s leasing increased 32% from Q1 2017 to 0.8 msf, helped by a large deal each in Hyderabad and Bengaluru.

Sectoral Share in leasing

Sector

Q1 2018

Q1 2017

IT/BPM

37%

46%

Healthcare & Pharma

15%

2%

BFSI

11%

7%

MALL SUPPLY TREND

Source: Cushman & Wakefield Research

“We are likely to see sustainable leasing this year as the impact from Brexit, GST has dissipated and corporates are now firming up their growth plans. We expect leasing by Pharma and Healthcare, BFSI and Co-working sectors to flourish in 2018. Currently, the IT-BPM industry is going through a new phase of growth wherein hiring is restrained in the face of newer technologies like robotics, artificial intelligence. However, in subsequent quarters, we expect IT-BPM companies to step up hiring for new skills required for enabling newer technology. Some big-ticket deals continue to take place in this IT-BPM space, and we expect that to continue in subsequent quarters”.

- Anshul Jain, Country Head & Managing Director India, Cushman & Wakefield

 

TECH MARKETS BENGALURU & HYDERABAD SEE HIGH SURGE IN RENTALS

During the first quarter of the year, all grades supply declined 14% from Q1 2017 to 5.4 msf as developers focused on quality Grade A developments. In line with lower supply, net absorption during the quarter declined by 10% to 5 msf. On the other hand, Grade A supply rose 8% to 5.1 msf in Q1 2018, while Grade A net absorption recorded a marginal drop of 2% from Q1 2017 to 4.5 msf during the quarter,

In Bengaluru, net absorption rose 40% from Q1 2017 to 1.65 msf at a time when supply addition has been modest since last year. As a result, the overall city’s weighted average rentals rose 10% in Q1 2018 from the year-ago quarter, led by a double-digit growth in rentals in most submarkets such as Peripheral East (Whitefield), Suburban South (Koramangala, Bannerghatta Road, Jayanagar), Peripheral South (Electronic City, Hosur Road, Mysore Road).

Hyderabad recorded 34% increase in net absorption from Q1 2017 to 1.2 msf. Healthy demand for office space in Hyderabad, coupled with strong pre-commitments and limited availability of space has led to an increase in prime rentals. The weighted average rentals in one of the most preferred submarkets, Madhapur, surged 10% from Q1 2017 owing to limited availability amidst low vacancy of 4%.

SUPPLY

NET ABSORPTION

Q1 2017

Q1 2018

% chg

Q1 2017

Q1 2018

% chg

Ahmedabad

 0.45

 0.47

5%

 0.09

 0.10

9%

Bengaluru

 2.36

 1.24

-47%

 1.18

 1.65

40%

Chennai

 0.10

 0.08

-26%

 0.79

-0.16

-121%

Delhi-NCR

 0.90

 0.67

-26%

 0.76

 1.12

47%

Hyderabad

 1.20

 1.24

3%

 0.90

 1.21

34%

Kolkata

 -  

 0.62

NA

 0.12

 0.09

-19%

Mumbai

 0.23

 0.44

90%

 0.52

 0.48

-8%

Pune

 1.01

 0.62

-38%

 1.17

 0.50

-57%

TOTAL

 6.24

 5.38

-14%

 5.52

 4.99

-10%

Note: Numbers are for ALL GRADES and are rounded off.

For further information, please contact:

Somil Agrawal

Head of Strategic Marketing - India

somil.agrawal@cushwake.com


About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm with 45,000 employees in more than 70 countries helping occupiers and investors optimize the value of their real estate. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

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