Bengaluru sees highest office leasing volumes in APAC in 1Q16
In 1Q16, both Europe and the Americas surprised us by their positive and negative performance, respectively. As leasing volumes in the Americas fell to their lowest level since the global financial crisis (GFC) over growing concerns on economic stability, volumes in both Europe and Asia Pacific held up well during 1Q16. While leasing volumes in the Americas fell by a 10% (y-o-y), Europe and Asia Pacific increased by 14% and 7% respectively (y-o-y). Fear of a near-term recession spooked many U.S. tenants in the first quarter and as a result, expansion plans were put on hold. Nevertheless, many corporates are still keen to move in order to accommodate record-level employment and changing workplace preferences. Asia Pacific, however, is projected to outperform the other regions – with volumes growing by around 10-15% in 2016. Bengaluru, NCR shine in Asia Pacific A strongest leasing activity was recorded in Bengaluru, Tokyo and Delhi-NCR in 1Q16. Bengaluru saw the highest leasing volumes in Asia Pacific on the back of big-ticket transactions, while Tokyo saw good pre-commitments on upcoming supply. Delhi came third due to healthy leasing activity as also pre-committed space becoming operational. These two Indian cities together saw gross leasing of more than 0.4 million square metres (net leasable area) in 1Q16, out of which Bengaluru saw more than 0.2 million square metres and Delhi-NCR saw more than 0.1 million square metres. Development cycle peaks, but supply pipeline is under control At a global level, 2016 is expected to represent the peak of the office development cycle with 16.8 million square metres of new deliveries anticipated in tier-I cities. Current projections suggest that completions will then diminish to around 15.8 million square metres by 2018. In India, 2017 is projected to see the peak of office space supply but this will still be below the peak of 2011. Inadequate ‘relevant’ supply in 2016-17 will be a limiting factor for absorption of space. The supply pipeline is expected to reduce from 2018. Global vacancy rates edge upwards The global office vacancy rate is expected to hover at around 12% for the remainder of the year, with falls in the U.S. vacancy rate balanced by a modest rise in Asia Pacific to around 11.7%. Vacancy is expected to be broadly stable in Europe. India (the top-7 tier-I and tier-II cities) saw a vacancy rate of 15.9% in 1Q16 and the same is expected to be at 16% by the end of 2016 and 16.3% by end of 2017.
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