OFFICE LEASING AT ITS STRONGEST

OFFICE LEASING AT ITS STRONGEST IN 3 YEARS, POISED TO BE THE HIGHEST EVER IN 2018

  • Captive Centres shore up leasing and occupies second slot in in Q3 2018.
  • Office space demand likely to skyrocket to 48 - 50 msf and may even surpass by December 2018.
  • Average deal size jumped 27% this year to 34200 sf.
  • Co-working continues to be the third highest contributor to leasing activity this year.

Tech & IT-BPM leasing on an upswing; Captive Centers emerge as 2nd highest lessee

Commercial office market is witnessing a robust streak, buoyed by strengthening business confidence, and optimistic prospects in the fastest-growing economy in the world. Office leasing registered strong gains of 15% at 33 msf across the top 8 cities[1] of India, during January-September, as compared to the corresponding period last year. Companies are seen to be integrating key verticals into one office in a bid to increase productivity, while expanding, consolidating and evaluating workplace transformation strategies for better facilities and amenities.

City

Jan-Sept 2017

Jan-Sept 2018

% chg

Ahmedabad

0.37

      0.2

-47%

Bengaluru

9.3

     12.0

29%

Chennai

3.0

1.7

-44%

Delhi-NCR

5.7

      6.3

10%

Hyderabad

4.8

      7.4

53%

Kolkata

0.78

         0.4

-52%

Mumbai

2.6

      3.7

44%

Pune

2.4

      1.6

-33%

TOTAL

    29.0

     33.3

15%

Majority of the demand during the year was led by Q3 2018 that eclipsed the corresponding quarters of the last two years, to climb to approximately 18.5 msf. Of this total demand during the quarter, pre-commitments were noted at 7.5 msf, more than a 2-fold rise from the corresponding quarter last year. Majority of the pre-commitments were witnessed in tech strongholds of Bengaluru and Hyderabad.  

Going ahead, total demand for office space is likely to bolt to an all-time high in 2018 at 48-50 msf and may even surpass by December 2018 as occupiers are expected to implement their expansion plans and take-up large office spaces, giving a huge boost to India’s office market.

Large office deals make a strong comeback

In an indication of increased assurance in the market, occupiers have begun to prefer large office spaces (above 100,000 sf), with such deals rising 15% to approximately 69 transactions during January-September 2018, from the corresponding period last year. Space leased through large deals rose 35% to 18.2 msf, during the current period of observation (Jan-Sept 2018).

Large deals accounted for 50% of the total leasing during the nine-month period this year. The dominance of large deals in the office market is a huge reminder that companies are buoyed by policy clarity, and better business prospects leading to strong pre-commitments for future space in top markets. As a result of the large deals, the average deal size has risen 27% this year to approximately 34,200 sf.

Smaller transactions during the year were slightly lower with the count recording a drop of 24% on a YTD basis.

Bengaluru, Hyderabad on turbo-charge

This upswing in leasing activity comes on the back of healthy performance of cities like Bengaluru and Hyderabad. Bengaluru continues to be the favoured destination for companies led by a well-developed corporate ecosystem, good quality of office stock, and availability of talent. Hyderabad has gained demand momentum at a frenetic pace with the city second only to Bengaluru in terms of overall leasing activity in YTD terms. Bengaluru accounts for 58% share for all large deals in YTD 2018, followed by Hyderabad which holds a 22% share.

Both the southern cities are witnessing heightened momentum in demand, with several marquee deals taking place. With space constraints in top markets in both the cities, occupiers have been pre-committing large spaces, indicating strong future confidence in the market. Both the cities witnessed pre-commitments of approximately 3.5 msf each in Q3 2018 alone.

SINGLE-DIGIT VACANCY

The key IT cities continue to face a supply crunch which is likely to ease up only by H2 2019 and beyond. We are already witnessing healthy pre-leasing in these markets for the upcoming quality supply.

City

Forecast

Bengaluru

Tight vacancy; significant upcoming space already pre-committed

Chennai

Supply infusion from H2 2019 onwards to inject demand momentum

Hyderabad

Space crunch to ease only by 2020; pre-leasing already high in the upcoming supply

Pune

Upcoming supply in high demand with low vacancy impacting space take-up

SECTORAL SHARE          

Tech & IT-BPM leasing gain ground

  • The tech and IT-BPM sector’s share in leasing increased to 44% in Q3 2018, from 36% share in Q3 2017.
  • On an absolute basis, leasing by IT-BPM rose 77% in Q3 2018, from the corresponding quarter last year.
  • The IT-BPM sector has won multi-billion dollar contracts this year, apart from contracts worth USD 50 billion that are up for renewals[2] this year.
  • Half of the total space leased through large deals was accounted by the IT-BPM sector, up from 43% share in the corresponding period last year.

Captive Centers shore up leasing; occupies 2nd slot in in Q3 2018

  • Global in-house centres or captive centres ramped up expansion this quarter, raking in a share of 16%
  • Majority of them were BFSI captives as more and more financial services firms look to take their back-office operations in-house from a quality control perspective.  
  • Global companies chose Bengaluru as their destination for product engineering and R&D in the technology space.


Flexible workplace operators/enterprise solutions continue to ramp up

  • Flexible workplace operators (co-working and business centers) overtook Ecommerce, Consulting and BFSI sectors to emerge as the 3rd highest contributor to leasing activity this year (Jan-Sept)
  • Leasing by such companies has risen two-fold YTD as compared to the full year 2017, led by strong demand and low entry barriers
  • The share of flexible workplaces was noted at 7% during Q3 2018
  • Co-working companies, especially, are ramping up their presence as they focus on enterprise solutions as well as offerings in the form of pure serviced and/or managed office services.

Anshul Jain, Country Head & Managing Director, Cushman & Wakefield India:
2018 progresses on a note of exciting developments in office sector leasing. The compass for office space demand points north, for it is forecasted to spike to an unparalleled 50 msf in the next few months, which surpasses records. We backed flexible workplaces as an overall contributor to leasing activity since the beginning of 2018 and continue to do so. A strong business environment is catalysing strong pre-commitments for future space in top markets.

For more information, please contact:

Natasha Gupta

AVP – Strategic Marketing

Natasha.gupta@cushwake.com

Somil Agrawal

Head of Strategic Marketing - India

somil.agrawal@cushwake.com


About Cushman & Wakefield

Cushman & Wakefield (NYSE:CWK) is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.