Net absorption of office space remains stable in Q1 2016

In a year end update of office market, global real estate consultants Cushman & Wakefield, recorded a marginal 1% decline in net absorption[1] at 33.5 msf across top eight cities.General positive business sentiments and stronger growth recorded by global and companies in India over the last few quarters have led to companies firming up expansion and consolidation plans as they foresee higher potential on the back of an optimistic business outlook, thus maintaining the levels of net absorption. Of the total net absorption, Bengaluru contributed the highest at 10.3 msf followed by Pune, at 6.3 msf, and Hyderabad at 5.5 msf.

However, in 2015 a large number of companies went into consolidating their operations in larger spaces in a bid to improve productivity, brought about by combined efficiencies which led to total leasing activities breaching 50 msf in 2015.  Leasing activities during 2015 recorded a 15% increase over 2014 on the back of increased confidence brought about by steady economic growth and renewed corporate confidence especially in the IT-ITES and e-Commerce sectors.

Spurred by increased corporate confidence, the year 2015 witnessed 9% higher office space supply at 41.2 msf – the highest supply seen in the last three years.

Sanjay Dutt, Managing Director, India, Cushman & Wakefield, The commercial office sector gathered momentum with some large leases and buy-out transactions witnessed during the year. Companies have been firming up expansion and consolidation plans, leading to increased leasing activity as they foresee higher potential and increasing business activity. The absorption trend during the year was largely driven by the IT-ITeS, E-Commerce, Consulting and Pharmaceutical sectors. With recent announcements such as Smart India and Make in India, that are geared towards providing economic fillip to India’s economy, we expect a growth in new occupiers apart from an expansion in the existing corporates in India, who are expected to further commit to larger spaces. Several new start-ups which are in growth mode will create considerable demand, helping office space absorption to remain strong. The next two years is expected to see increased occupier demand on the back of improved business activity and economic growth”

Bengaluru accounted for 31% of total net absorption across the top eight cities, followed by Pune and Hyderabad. During the year, companies from the IT-ITES and e-Commerce sector were seen to be relocating to larger Grade A buildings especially in the Outer Ring Road submarket.

Net absorption levels in Pune gained momentum during the year and surpassed that of Mumbai, Hyderabad, Delhi-NCR, placing the city on the second place during the year. The city’s net absorption levels rose 61% during the year at 6.24 msf. Pune is fast emerging as a preferred option among corporates due to greater affordability compared to cities such as Mumbai and Bengaluru, and its proximity to Mumbai. As a result of increased preference for the city, supply more than doubled to 7.71 msf during 2015 with the Suburban West submarket of Pune (Aundh, Baner, Pimpale Nilakh, Pashan, Sus, Bavdhan, Pimpri) witnessing  a chunk of the construction completions during the year. Despite supply doubling, high absorption levels led to vacancy levels falling to 18.8% at Q4 2015 from 22.1% at the end of Q4 2014.

Apart from Pune, Hyderabad too witnessed a spurt in commercial office activity during the year. Net absorption rose approximately 25% during 2015, with the IT-ITeS sector and the Pharmaceutical sector accounting for the maximum leasing activity. A relatively affordable market, as well as improved political stability in the state are seen to be driving demand for commercial office spaces. Post the bifurcation and with the new government coming up with policies for economic growth and stability, the corporate confidence is seen to be upbeat. In addition to this all, the rental value at which quality office space is available in the city has added to the attractiveness of the location. As a result of a spurt in demand and lower supply in 2015, vacancy level have tapered to 12.03% at the end of Q4 2015 from 17.9% at the end of Q4 2015 last year.

Delhi-NCR witnessed high consolidation and relocation activity during the year that led to 44% decline in net absorption to 3.83 msf in 2015. The first and the fourth quarter, in particular, witnessed low net absorption levels in Delhi-NCR. High relocation activity was witnessed in Mumbai too, that led to net absorption levels declining 30% to 3.18 msf in 2015. Leasing activities, which accounts for relocation and consolidation activities, saw a rise of 2% and 14% respectively in Delhi NCR and Mumbai.

[1] Net absorption refers to the incremental new space take-up; renewals not included in leasing activity statistics


Sitara Achreja,Director, Marketing & Communications

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