Office market to stay strong despite falling growth numbers: Colliers report

[ecis2016.org] Despite the forecast of falling growth in India’s GDP to 6.8%-7.0%, due to the short-term repercussions of demonetisation, the office sector will continue to witness strong demand, led by Bengaluru, says a report by Colliers International

The policy changes that the government is implementing, should help improve business confidence in India and result in robust office leasing demand in the coming years.

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Occupiers looking for large, quality spaces, should consider making pre-commitments in new office buildings, especially in the technology-driven markets like Bengaluru, Hyderabad and Pune, according to a report by Colliers International – ‘India Office Property Market Overview, Trends to watch for in 2017’.

Bengaluru remained on a high growth trajectory and maintained its leading status among the key cities, by retaining a 31% share of the total occupier demand, followed by Delhi-NCR (18%.) Hyderabad and Chennai stood on 13% each, while Mumbai, Pune and Kolkata accounted for 14%, 9% and 2%, respectively, of the overall leasing volume.

In 2016, 27.2 million sq ft (2.53 million sq metres) of grade A new supply was released into the market. This was insufficient to cope with the very strong demand, especially in markets such as Bengaluru, Hyderabad, and Pune and resulted in a significant fall in vacancy levels and an increase in office rents in most of the micro-markets in these cities.

“In the technology-driven markets such as Hyderabad, Bengaluru and Pune, the demand-supply gap is likely to remain a concern in the short term. Tenant appetite for higher quality offices has been reflected in new leases being executed at above market rates, in select grade A buildings in all the cities. Expecting a similar trend in 2017 as well, we cannot rule out the possibility of upward pressure on rents, at least in the first half of the year in most of the preferred markets for grade A buildings,” said Surabhi Arora, senior associate director, research, at Colliers International.

Bengaluru

In 2016 Bengaluru accounted for the highest percentage of overall India leasing volume in the office space, recording 12.8 million sq ft (1,188,300 sq meters) gross absorption. This was the highest leasing across the top nine Indian cities.

Read also : Top 10 affordable localities in Delhi for buying a house

IT/ITeS companies were on an expansion spree and vigorous leasing is expected to continue in 2017.

Despite significant supply pipeline, low vacancy in select micro-markets, should exert upward pressure on rents.

Hyderabad

For Hyderabad, demand outpaced supply in 2016. In terms of occupier demand, 2016 was a record year for Hyderabad, with the highest leasing volume since 2011. Recording a 37% year-on-year increase in gross leasing, nearly 5.6 million sq ft (521,250 sq meters) was leased in the city, outstripping the new supply addition of about 2.3 million sq ft (216,900 sq meters).

Hyderabad’s office market is in transition and property owners have aggressively increased rents in 2016, as available office space diminished with massive expansion by IT occupiers. In the short term, supply should complement demand.

[ecis2016.org] Net office absorption across the top eight cities likely to surge by up to 10% to 32.4 million sq ft, in 2017

NCR

NCR recorded gross absorption at 7.6 million sq ft (706,063 sq meters), at par with 2015 numbers. Gurgaon, with 51% of total NCR absorption, remained the preferred choice among occupiers, followed by Noida and Delhi that shared about 36% and 13%, respectively. Interestingly, in Gurgaon while the technology sector remained the key driver of office leasing activity with a 32% share, the stake reduced significantly from the last year’s number of 64%. In Noida, the technology sector remained the key demand driver with 60% share.

Due to a dearth of quality office space in other technology-driven markets like Pune and Bengaluru, we may see a supply-led demand in the coming quarters, resulting in increased absorption volumes in NCR.

Pune

A narrow supply pipeline, is likely to tighten the leasing market for Pune. In the leasing segment, conversion and inquiries remained consistent throughout 2016. However, large-sized deals significantly declined, due to the scarcity of quality supply. Absorption dwindled to 3.9 million sq ft (3,66,038 sq metres) for the year 2016, a 22% decrease since 2015.

Read also : Top 10 office markets that witnessed highest rental growth in Q3 2018: Colliers report

The demand-supply gap is likely to remain a concern in the coming quarters.

Mumbai

Leasing volume remained subdued due to demand and short supply. Although leasing activity was relatively restrained in H1 2016, it accelerated in H2 2016 with several large closures. The overall leasing volume for 2016 was 5.6 million sq ft (520,257 sq meters), a 15% decrease from 2015.

Although rents are likely to remain stable across most micro-markets, the availability of grade A buildings at affordable rent, will remain a concern for the next few years.

Chennai

Occupier preference for OMR continued with the OMR-Post Toll belt gaining substantial traction. During 2016, office sector demand in Chennai remained at par with the previous year, with total gross leasing volume at nearly 5.3 million sq ft (493,700 sq meters). In fact, closure of a few large transactions in Q4 2016, helped Chennai to achieve a gross absorption level of 4% above that of 2015.

Peripheral micro-markets should continue to gain occupier preference, as most of the new supply is concentrated in this belt, mainly comprising Old Mahabalipuram Road (OMR).

Kolkata

Rents remained stable, as occupier-favourable conditions persisted. Leasing activity was relatively subdued during the year, as only 0.9 million sq ft (79,896 sq metres) of gross absorption was recorded, marking a 13% decline from 2015 levels. Most of the deals were small, with an average size of 8,000 sq ft (743 sq metres).

Amid high vacancy and affordable rents in Sector V and the peripheral districts of Rajarhat and New Town, occupiers will probably continue to opt for grade A office space in these micro-markets, for expansion and upgradation.

Source: https://ecis2016.org/.
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