Office absorption touches 47.4 million sq ft in 2018: Report

As in the previous quarters, office space take-up was dominated by small and medium-sized transactions.  Mid-sized transactions (ranging between 10,000 sq. ft. and 50,000 sq. ft.) accounted for about 41 percent of the transaction activity, while small-sized transactions (less than 10,000 sq ft) had a 44 percent share, says the report.

Bengaluru, followed by Gurugram and Hyderabad, dominated large-sized deal closures in the fourth quarter of 2018, while a few such deals were also reported in Mumbai and Pune. Corporates from sectors such as technology, BFSI and engineering and manufacturing dominated large-scale deal closures.

In Delhi-NCR, Gurugram dominated the leasing activity. Sustained occupier interest and culmination of pre-commitments resulted in Extended Golf Course Road, DLF Cybercity and Golf Course Road accounting for nearly half of the region’s leasing activity. Majority of the deals were closed in secondary spaces. Rents remained largely stable across all micro-markets.

In Bengaluru, supply addition occurred in ORR, PBD and CBD. Supply addition was witnessed in the form of medium-to-large-sized SEZ and non-SEZ developments in ORR, a medium-sized non-SEZ development in PBD Whitefield, along with a small-sized non-SEZ development off Infantry Road in CBD. Tech corporates dominated leasing activity, followed by engineering and manufacturing and telecommunications operators. Rental values remained stable across all micro-markets on a quarterly basis.

In Mumbai, leasing activity largely stable on a quarterly basis. There was quarterly supply addition in the form of overall four non-IT developments viz., two in Eastern Suburbs, one in Western Suburbs 1 and one in Navi Mumbai. Space take-up was mainly driven by IT developments and was dominated by Eastern suburbs, followed by Navi Mumbai. Primary space take-up dominated leasing activity, owing to the availability of space in recently completed investment-grade developments in Navi Mumbai.

The year 2018 witnessed continuity in the trend of future-proofing the portfolios and hedging against future rental escalations by pre-leasing space across various cities. The year recorded almost 16 million sq ft of pre-leasing activity, mainly in Bengaluru, Hyderabad, Pune and Gurugram.

While Bengaluru, NCR and Hyderabad are expected to dominate completions over the next quarter, Hyderabad is expected to remain high on the developers’ radar, with the significant increase in construction activities observed in recent quarters.

Although rents are likely to increase across most peripheral and sub-urban micro-markets, CBRE expects rental growth to taper in the coming quarters. While rental values in cities such as Hyderabad and Bengaluru are expected to increase across several micro-markets; cities such as Pune, Chennai and NCR are expected to witness demand-led rental growth only in select locations. Overall, rentals are likely to remain firm with an upward bias in active locations, the report said.

“Office leasing activity is expected to remain stable in the short term, backed by corporates looking to expand or consolidate their operations. Similar to last year, we expect that occupiers would put in greater efforts to build in flexibility in their portfolios due to changes in the business environment. Additionally, the filing of India’s first REIT, primarily comprising office assets, is also likely to further improve investor interest in this segment the coming quarters,” says Anshuman Magazine, head of India, South East Asia, Middle East and Africa, CBRE.

Ram Chandnani, managing director, Advisory & Transaction Services, India, CBRE South Asia Pvt Ltd, says “Overall, we expect infrastructure initiatives such as completion of highways and introduction of Mass Rapid Transport System (MRTS) services, etc. to influence occupier preferences and decision-making in the coming quarters. In lieu of the sunset date on SEZ benefits, we also expect the share of leasing in SEZs to rise across cities in 2019.”