In the latest office market report from real estate consultancy Cushman and Wakefield, the first quarter of the 2012, noted absorption across top eight cities at 7.0 million sq.ft. registering a decline of 32% over last quarter and 6% over the same period last year.
By Cushman & Wakefield
- Cumulative office space absorption for the top 8 cities in India fell 32%* in Q1; Mumbai (up 35%) Kolkata (up 33.7%) and Ahmedabad (up 5.6%) buck the trend
- A rise by 140% in pre-commitments compared to the previous quarter and by 41% compared to the same quarter last year.
- Demand led by IT/ITeS and BFSI sectors constituting 53 % of absorption Cumulative office space supply for the top 8 cities in India fell 24%* in Q1;
Mumbai, April 16, 2012: In the latest office market report from real estate consultancy Cushman and Wakefield, the first quarter of the 2012, noted absorption across top eight cities at 7.0 million sq.ft. registering a decline of 32% over last quarter and 6% over the same period last year. Mumbai, Kolkata, and Ahmedabad were the only markets showing a rise in absorption at 35%, 33.7% and 5.6% respectively. In contrast to declining absorption levels there was a rise by 140% in pre-commitments compared to the previous quarter and by 41% compared to the same quarter last year. Total pre-commitments during 1Q 2012 were noted at 3.7 msf across the top 8 cities. Bengaluru recording the highest pre-commitments of 2.9 msf followed by NCR (0.45 msf) and Chennai (0.1 msf).
Mumbai witnessed the highest growth in absorption at 35% due to the significant increase in space take up by the BFSI sector which is in an expansion mode. Mumbai also saw a number of large sized deals ranging from 100,000 – 300,000 sq.ft.; amounting to 50% of the absorption cumulatively.
Bangalore noted the highest absorption at 2.45 msf, although the absorption was lower than last quarter; it was 17% higher compared to first quarter last year. On the other hand NCR saw one of the lowest absorption levels noted at 0.55 msf due to cautious approach followed by the companies. The precommitments of 0.45 million sqft. exhibit the demand for space in this city is expected to gain momentum in the coming quarters.
On the office space supply side, a total of 6.8 msf of new office space was completed, which represents a cumulative fall of 24% Q-o-Q, . This has helped in maintaining the demand to supply gap in the office market, retaining the overall vacancy to 18%.
However, supply could exceed demand in cities like Mumbai, NCR and Chennai as these cities have a strong pipeline of under-construction inventory whilst Bengaluru is expected to witness the strongest demand. Developers may control construction activity so as to keep supply in line with the demand resulting in stable rentals during the second half.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India - "Though the first quarter has seen subdued office absorption, majors in the IT/ITeS and domestic BFSI sectors have already indicated plans to grow which will result in strong demand for office space during the year.. Growth in non-IT absorption is also likely to provide sustained demand in the domestic market across the major cities. Further, with the predictions of a better economic environment in the USA and the Euro zone, the Indian markets would be impacted favourably."
The commercial office market in Mumbai regained some momentum in the first quarter of 2012 and recorded absorption of approximately 1.4 msf spread across all micro markets. The BFSI sector remained the highest demand driver with nearly 27% of share in absorption.. Absorption was concentrated in BKC (29%) followed by Thane-Belapur Road (23%) and Lower Parel (19%). The city saw decline in pre-commitments during the quarter since companies preferred to take up space in ready developments due to high availability.
Additionally, supply remained subdued during the first quarter of 2012 and was recorded at 1.44 msf, which is 47% less than the last quarter. There was no change seen in the rental values compared to last quarter and it is likely remain at current levels owing to competitive pressure from upcoming supply.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India said, "Mumbai has witnessed significant absorption from BFSI companies over the last couple of quarters. While BFSI companies continue to expand their corporate and back offices in Mumbai, activity levels in relation to consolidations and relocations are expected to pick up pace in the coming few quarters particularly from industry segments such as Pharmaceuticals and Engineering. In general, companies looking for work force convenience, image and quality will continue to relocate from South Mumbai to the secondary business district (SBD) of BKC and those looking for cost effective options will prefer Andheri and Lower Parel. Rental Values will remain stable with a downward bias in over supply micro-markets such as Andheri and Lower Parel for the coming quarter."
NCR witnessed low absorption during the quarter and was registered at 0.55 msf with pre-commitments further accounting for nearly 0.45 msf. The major chunk of the pre-commitments have been for IT SEZ spaces.
The CBD locations recorded a rental appreciation of approximately 14% over the last quarter, attributable mainly to the prevailing low vacancy levels and lack of supply. However, across most other micro markets, the rental values remained stable in the light of weak demand during the quarter.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India, said, "The start of the year for the office market in NCR has been slow as absorption has been extremely low. However, the fact that pre-commitments have been better this quarter and nearly equalled the absorption is perhaps an indicator that companies will increase their presence in the near future."
Bengaluru’s commercial office market witnessed the highest absorption of 2.45 msf and pre-commitments of 2.9 msf approximately in the first quarter of 2012. Peripheral markets of Whitefield and Electronics City recorded the highest absorption on account of comparatively reasonable rentals. The overall vacancy level increased to 13.2% during the quarter as majority of the new supply admeasuring 1.27 msf was delivered in the latter part of the quarter. Rental values in CBD/Off-CBD micro market (M.G. Road, Millers Road, Vittal Mallya Road, Residency Road, etc.) and suburban locations (Suburban locations include CV Raman Nagar, Koramangala, Bannerghatta Road, etc.) increased 17% and 12% respectively owing to limited Grade A supply and buoyant demand.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India said, "Absorption levels in Bangalore will remain on the higher side as significant lease transactions are expected to be closed during the forthcoming quarters. By the end of 2012, vacancy too is expected to come down marginally."
The absorption for office space in Chennai during the first quarter of 2012 was registered at approximately 0.8 msf and pre-commitments accounted for only 0.l msf.. While traditionally the IT/ITES sector had been the key demand driver in the office market, non-IT sectors accounted for majority of the absorption during the first quarter of 2012. Entire quantum of pre-commitment was registered in SEZs supply for the first quarter of 2012 was restricted to only 380,000 sf, for which suburban Guindy accounted for the majority. Existing demand for office space in CBD and off-CBD locations pushed up rentals in the by 3-4%.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India, says that "SEZ supply in the forthcoming quarters is likely to be significant with more than 4 msf of SEZ space charted for completion in 2012. Despite the anticipation of significant supply in the following quarters, positive demand levels are likely to keep check on vacancy levels in the market."
Kolkata's office market continued the previous trend of absorptions at just over 280,000 sf and continued to witness healthy demand as absorption remained high by approximately 33.7% compared to the last quarter. Rentals in prime office locations like Park Street and Chowringhee continued to appreciate on account of steady demand from various non-IT/ITeS companies. Supply was recorded at 0.6 msf, almost 41% higher than last quarter’s supply.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India, said, "The IT/ITeS sector continued to be the key demand driver for the quarter. However, entry of companies from various other sectors like engineering and automobiles was also noteworthy. Rentals in prime office locations continued to appreciate on account of steady demand faced with lack of supply."
Approximately 55% of this Pune's office space supply was in Special Economic Zones (SEZs) during 1Q 2012. During the same period, the city recorded absorption of just over 0.7 msf.. Absorption was highest in SEZs, which accounted for 47% followed by the Software Technology Parks (STPs) and commercial non-IT office buildings, absorbing 38% and 15% of the office space respectively. Rentals across the city have been stable compared to the last quarter, except for minor appreciation noted at approximately 3% in micro markets of Kharadi, Hadapsar and Hinjewadi.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India, said, "Restrained supply helped the vacancy levels to drop from 25% in fourth quarter of 2011 to 23% during the first quarter of 2012."
Hyderabad saw a total overall absorption at over approximately 0.71 msf. New supply also declined compared to last quarter with approximately 0.56 msf getting operational. Due to stable supply and infusion of second generation space in the suburban micro markets and a moderate demand across the city, overall vacancy has also increased marginally. Rents have remained stable across the city on account of no major variations in demand trends.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India, said "The growth trend of non-IT absorption has continued to remain buoyant and several companies involved in engineering , professional services and technical services have taken up space mainly in the suburban, CBD and off-CBD micro markets during this quarter. The city is expecting a fresh supply of approximately 1.5 - 2.0 msf, mostly in the suburban micro markets, over the next two quarters which should be able to cater to the needs of companies for Grade A spaces."
Ahmedabad recorded a total absorption of over 1 lakh sf, registering an increase of approximately 6% over the fourth quarter of 2011. However, the city did not witness any fresh supply during the first quarter of 2012. The city also witnessed increase in rental values upto 6% across various micro markets in Ahmedabad. Rental values across the city appreciated over the last quarter, with highest appreciation upto 6% noted at Ashram Road and C.G. Road due to lack of availability of Grade A office space.
Ravi Ahuja, Executive Director, Office Transactions, Cushman & Wakefield India continued, "Irrespective of the slowdown, the demand for commercial space in Ahmedabad did not show any slowdown in the first quarter of 2012. The absorption for commercial office space has been largely driven by the small and medium enterprises in the engineering and pharmaceutical sectors. Also it is expected that the space absorption is likely to remain stable in the next quarter with BFSI and small scale industries expected to be the key demand drivers."
About Cushman & Wakefield
Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 234 offices in 61 countries and more than 13,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within five primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, investment banking, debt and equity financing; Client Solutions, including integrated real estate strategies for large corporations and property owners, Consulting Services, including business and real estate consulting; and Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushmanwakefield.com
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