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Bengaluru leads office absorption; gross office take-up touches 9.6 mn sq ft

Steady demand to continue in the second half of 2017; upward pressure on rents likely in south cities


Despite demonetisation and recent layoffs by technology companies, the commercial market continued to remain resilient, backed by sustained expansion plans of major occupiers. The gross office take-up in India amounted to 9.6 mn sq ft in the second half of 2017 representing a nominal 2 percent increase quarter-on-quarter, says a report by Colliers Research.

Bengaluru continues to dominate the office market and recorded an overwhelming share of 34 percent of total leasing volume, followed by NCR at 19 percent and Hyderabad at 17 percent. Mumbai. Chennai, Pune and Kolkata accounted for 13 percent, 11 percent, 4 percent, and 2 percent respectively, on overall leasing volume, it says.

“Real estate has seen a series of challenging regulatory impediments in its performances, with demonetisation, RERA and now GST. In the post-GST era, service tax (15 percent) in commercial leases will be replaced with GST at 18 percent. However, we expect demand to remain steady, with some large activities of consolidations and relocations in Bengaluru, Mumbai, Pune and NCR. Hyderabad witnessed a sharp rise in demand from 0.51 million sq ft to 1.6 million sq ft quarter-on-quarter, which is more than double. Overall office demand is expected to see steady rise in take up for next few quarters”, says Ravi Ahuja, executive director, Office Services & Investment Sales, Colliers International India.

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“Despite, recent layoffs’ alert by technology companies due to automation and changing technology, we expect the commercial market to remain resilient backed by sustained expansion plans of the major occupiers. July onwards, India adopted a multi-tiered Goods and Services tax (GST) structure. Although it will result in marginal increase in occupancy costs, we do not expect any adverse impact on demand. GST implementation should bring operational efficiency and widen the tax base, leading to higher revenues, infrastructure spending and more investment in the country. The influence of recent adoption of the goods and services tax (GST) and increasing interests of investors in warehousing sector should be noticeable events to watch out for in the second half of H2 2017”, says Surabhi Arora, Senior Associate Director, Research, Colliers International India.

Colliers International India expects leasing activity in Bengaluru to be dominated by small and mid-size transactions as BTS options are expected to remain the preferred choice among occupiers with large size requirements in prime corridors. Despite a supply pipeline of nearly 3.0 million sq ft (0.3 million sq m) in the second half of 2017, new occupiers with large size requirements may find it difficult to lock in long-term leases. The small and mid-size occupiers should consider flexible workspaces to leverage on their location and the ease of operation they provide.

NCR recorded gross absorption at 1.8 million sq ft (from 1.57 mn sq ft in Q1 2017), Gurgaon with 50 percent of total NCR absorption remained the preferred choice among occupiers followed by Noida and Delhi that shared about 30 percent and 20 percent respectively.

The gross leasing volume in Gurgaon reached about 0.9 mn sq ft (83,612 sq m) marginally up from last quarter numbers. While NOIDA’s commercial market witnessed sustained interest from occupiers in Q2 2017, resulting in absorption of about 0.5 million sq ft (46,400 sq m) of Grade A office space; marginally up from the previous quarter. About 70% of this demand was contributed by the technology sector, including e-commerce and fintech companies. In Delhi, the corporate leasing activity remained stable with gross absorption standing at only about 0.42 million sq ft (39,019 sq m), up by 27 percent q-o-q.

In Hyderabad, commercial leasing revived with about 1.6 million sq ft (145,300 sq m) of gross absorption in Q2 2017 versus just 0.51 million sq ft (47,300 sq m) gross leasing activity in Q1 2017. Regardless of the anxieties about lay-offs and automation in the technology sector, the industrial sector continued to expand and accounted for 92% of overall office leasing in the city. As per Colliers International, the Central Business District (CBD), off-CBD and PBD micromarkets recorded 5%, 4% and 2% of the remaining share in gross leasing respectively.

In the second quarter of 2017, the gross absorption in Mumbai, was recorded at 1.2 million sq ft (0.1 million sq m) down from 1.7 mn sq ft in the first quarter of 2017. Except for a few large transactions, the average deal size remained low at 15,400 sq ft (1,430 sq m). Despite a 29 percent decline in transaction volume from the first quarter of 2017, we expect absorption to improve in the third quarter, with a few large size transactions in the pipeline totaling to 0.75 mn sq ft (70,000 sq m). “We expect future demand to be reinforced by data centres, co-working operators, logistics and warehousing companies, looking at the increased enquiries from these sectors,” says the report.

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First Published on Jul 12, 2017 03:14 pm
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