India’s office market absorption crosses 42 million sq ft in 2017: CBRE Report

Annual absorption of office space in India crossed 42 million sq ft in 2017, signalling continued growth of the segment. Bengaluru and Delhi NCR accounted for over 50 percent of annual leasing activity. A report by CBRE titled India Office Market View Report – Q4 2017 says that annual supply for prime office space was over 29 million sq ft during the year, a decline of about 18 percent on a year-on-year basis. Several smaller cities are also emerging as preferred locations by corporates looking to expand their footprint in the country, says the report. Leasing activity in 2017 was driven by the IT sector with a 32 percent share. Other segments that drove demand for office space across key cities were BFSI (19%), engineering and manufacturing (17%) and research consulting and analytics firms (8%). Demand for co-working space continued to witness an uptick (almost quadrupling in 2017 to touch 2.6 mn sq ft), with both global and domestic players continuing to expand their operations in key cities like Bengaluru, Gurgaon and Mumbai. On an annual basis, the Southern cities of Bengaluru, Hyderabad and Chennai witnessed a rental increment across almost all micro-markets. Delhi NCR, on the other hand, witnessed a rise in rental values in core locations only. Almost 90 percent of all transactions in 2017 were for small to medium-sized spaces. The share of global corporates operating in the country also increased during the year. On a quarterly basis, sustained occupier interest resulted in leasing activity rising by about 18 percent q-o-q, crossing 12 million sq ft in the October to December 2017 period. While Bengaluru and Delhi NCR continued to remain the key drivers, Hyderabad overtook Mumbai in terms of office leasing during the quarter. Supply addition during the quarter was close to 11 million sq ft. As for outlook for 2018, overall take-up to remain strong in 2018, owing to positive impact of RERA and REITs. Alternative options such as co-working/business centres is expected to rise, it says. Occupiers are also likely to expand in proactive states with investment-friendly policies “After a record 2016, the growth momentum of India’s office market continued in 2017 as well. Despite various disruptions including the advent of technology and new office formats, overall demand for office space remained robust. While key metros continued to witness activity, we are seeing several smaller cities emerging as preferred locations by corporates looking to expand their footprint in the country. Hyderabad was one such city which has witnessed significant activity and demand for office space in the past 12 months,” says Anshuman Magazine, Chairman –India & South East Asia, CBRE. Similar to previous quarters, space takeup up was dominated by small and medium-sized transactions. Almost 45% of all transactions were for small-sized (less than 10,000 sq. ft.) spaces while 43 percent was for medium-sized spaces. The share of large-sized deals (greater than 100,000 sq. ft.) was similar to the previous quarter, garnering a share of 5 percent. Bengaluru and Gurgaon dominated large-sized deal closures, along with a few deals closed in Mumbai and Hyderabad, the report says. “During 2017, the advent of co-working/shared offices led to some disruptions in the office segment. However, overall leasing activity continued to be strong. In 2018, we expect demand for office space to remain steady across key locations in the country. Smaller cities could also see a rise in demand, on the back of healthy supply introduction in these locations. Due to the limited availability of ready to move in Grade A supply, occupiers with medium and large size requirements will focus on pre-commitments in under construction/built-to-suit developments across key micro-markets in the leading cities in the country,” says Ram Chandnani, Managing Director – Advisory & Transaction Services India, CBRE South Asia Pvt Ltd.