In the latest report  by real estate consultants Cushman & Wakefield, the top eight cities  of India recorded overall net office space absorption  of 7.9 million square feet (msf) in Q1 2015 (Jan –Mar’2015) recording a year – on – year (y-o-y) increase  of 35% over same time last year. Chennai (1,462%) and Bengaluru (512%) saw the highest increase in net absorption as demand from IT-ITES companies remain strongest for the southern cities in the improving business environment. NCR recorded a decline in net absorption which was lower by 57% in Q1 2015 over corresponding time last year. Other markets that saw significant decline in net absorption were Ahmedabad (-75%) and Hyderabad (-37%).  Supply in the meantime recorded a decline of 2% in the first quarter of the New Year and was restricted to approximately 7.4 msf.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “The trend will remain positive for 2015 backed by the overall economic sentiments of the country and a very strong push being applied by the government in creating  a more business conducive environment. The resultant would be a stronger demand from the IT/ITeS and BFSI sectors. We expect to see a growth in the office space absorption of approximately 15% by the end of 2015. Basis the same we expect total net absorption to be recorded between 36 – 37 msf at the end of 2015, majority of the demand coming from the IT/ITeS and the BFSI sector in key markets of Bangalore, Delhi-NCR and Mumbai.” 

There is a concentration of activities in the core or gateway markets with most companies looking at expansion, consolidation and relocation activities in these cities rather than in alternate locations. Thus markets like Bangalore, Delhi-NCR and Mumbai are expected to see a steadier increase in activities as against their immediate alternate markets like, Hyderabad, Pune and Chennai. Cost benefits and increased availability of Grade A spaces in markets like Ahmedabad, Chennai and Kolkata (albeit on much smaller scale than core markets) are expected to grow the transaction volumes within these cities on account of spill over demand or requirements from back office operations.  

Though NCR has registered a significant decline in office space net absorption at 60% in Q1 2015 as against the same time last year, there is largely due to the result of some delays in decision making as demand still remains strong from occupiers given that a number of transactions are in the pipeline.

Hyderabad saw a decline in net absorption largely due to a very hectic second half in 2014 which saw many large sized transactions being concluded in 2014, leaving less scope for activities in the first quarter in the New Year. Ahmedabad also saw a decline of 75% in net absorption attributable to a unique trend that slows down leasing when quality supply is low. In Q1 2015, Ahmedabad saw a decline of over 60% in supply as well due to which there was limited leasing activities.

Relocation and / or consolidation has contributed to another 24% to the total leasing activities in Q1 2015, which was recorded at approximately 10.5 msf. This has been a trend over the last few quarters. Interestingly, Chennai’s office market was largely driven by relocation and/or consolidation activities, which formed as much as 48% of the total leasing activities in Q1 2015. In Hyderabad about 36% of the total leasing activities was due to relocation and/or consolidation activities by major companies.