Commercial real estate segment witnesses 12.6 million sq ft of absorption in second quarter of 2018: Colliers Research

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The commercial real estate segment witnessed robust leasing with office space take-up touching 12.6 million sq ft in the second quarter of 2018, says Colliers Research forecasting that this trend is expected to continue driving demand for Grade A office spaces and increase institutional investments in premium commercial office assets in the next three years.

With this, the overall absorption for the first half of 2018 stands at around 24 million sq ft.  Bengaluru continued to account for the highest share of absorption at 34 percent in the second quarter followed by the National Capital Region (NCR) at 28 percent followed by Mumbai at 14 percent, Hyderabad and Chennai at 8 percent each, Pune at 6 percent, and Kolkata at 2 percent, it says.

Co-working spaces are also gaining popularity with 7 percent share of leasing being achieved in the first half of 2018. Besides its cost-effectiveness and flexibility, the increasing uncertainty among occupiers regarding their future headcount growth is driving the demand of co-working spaces. Colliers expects the co-working concept to expand in cities such as Mumbai, Bengaluru, and NCR.

Institutional investment in commercial assets also remained strong with investors continuing to buy pre-leased and buildings near completion. In the second quarter, the Indiabulls fund was reported as having bought Trivium, a 1.0 million sq ft (0.1 million sq m) multi-phase commercial development in Hyderabad. Blackstone LP acquired One Indiabulls Park (2.4 million sq ft or 0.22 million sq m); and Ascendas agreed to buy two towers in the QPark technology park in Navi Mumbai.

“With the Indian GDP forecasted to grow at above 7% annually over 2018-2022, primarily led by cities such as Bengaluru and Hyderabad. This economic growth should drive demand for Grade A office space and increase institutional investments in premium commercial office assets in the next three years”, says Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India.

In the second quarter of 2018, Bengaluru retained its leading position in pan-India office space absorption, recording 4.3 million sq ft of gross absorption. A year-on-year increase of 13 percent in gross absorption indicates occupiers are sufficiently confident in their business to take more space in the market. A total of 8.2 million sq ft of gross leasing has been recorded in the first half of 2018, out of Colliers’ yearly projection of 14 million sq ft by the end of 2018.

NCR accounted for 28 percent of the total office absorption pie in India, next to Bengaluru at around 3.5 million sq ft in the second quarter of 2018.

In Gurgaon, the demand momentum continued in the second quarter of 2018. With gross office uptake at 2 million sq ft in the second quarter, uptake in the first half of 2018 amounted to 3.7 million sq ft, an increase of almost 111 percent year-on-year, the report says. Technology companies accounted for 33 percent of the total leasing volume followed by banking, finance and insurance companies with 27 percent and the flexible workspace operators with 20 percent, says Colliers Research.

Absorption levels in Delhi stayed low during the second quarter of 2018 with just 0.15 million sq ft of gross absorption, down 42 percent quarter-on-quarter. The year-to-date office space take up was around 0.4 million sq ft. Aerocity accounted for around 35 percent of the overall leasing activity, followed by the CBD with 32 percent of leasing and Nehru Place with only 10 percent.

In the second quarter of 2018, Noida’s office market recorded about 1.0 million sq ft of gross absorption, taking the year-to-date numbers to 2 million sq ft. This is about double the same period in 2017. Amongst major occupiers, the technology sector accounted for around 42 percent of gross absorption followed by engineering and manufacturing sector at 23 percent, banking, financial services and insurance sector at 15 percent, the report says.

Mumbai recorded gross absorption of 1.7 million sq ft in the second quarter of 2018 taking the total for the first half of 2018 to 3.7 million sq ft. This represents a 27 percent increase from the first half of 2017. Demand continued to be driven by flexible workspace operators which took a 20 percent share, followed by BFSI with a 16 percent share and then the IT-ITeS, consulting and logistics sectors.

“The growth outlook for commercial real estate remains optimistic driven by financial and business services sectors across cities. In our opinion, the forecasted robust economic growth should drive demand for Grade A office space and increase institutional investments in premium commercial office assets in the next three years. Occupiers should realign their office portfolios as per the new workforce requirements by making use of flexible workspace while developers should focus on adding premium amenities in their upcoming development to meet the changing occupiers’ requirements,” says Surabhi Arora, Senior Associate Director, Research at Colliers International India.