Office space leasing increased by 23 percent to 15.4 million sq ft in the July-September quarter across nine major cities on the back of expansion by tech corporates and co-working players.
According to property consultant CBRE, office space leasing is expected to touch an all-time high this year at over 60 million sq ft.
Office leasing activity rose by over 30 percent annually, crossing 47 million sq ft during 2019 in the first nine months of 2019. Bengaluru, followed by Hyderabad, NCR and Mumbai, accounted for about 80 percent of the leasing during the period, the report added.
Tech corporates drove office space take-up in the country during 2019 YTD, share of the tech sector rose from 31 percent to 40 percent. They were followed by research, consulting and analytics companies (19%) and flexible space operators (15%).
About 43 million sq ft of new office supply was added in 2019 YTD; additions were led by Hyderabad, followed by Bengaluru, NCR and Mumbai, markets that accounted for almost 80 percent of this supply addition.
Compared to the first three quarters in 2018, the share of SEZs in supply dipped from 40 percent to 27 percent during 2019 YTD. The trend is expected to continue over the next couple of quarters, because of the approaching sunset clause on SEZ direct tax benefits. SEZ development completions during 2019 YTD were mainly witnessed in Hyderabad and Bangalore, followed by Pune, NCR and Chennai.
Small to medium sized transactions dominated space take-up
As in the previous quarters, office space take-up was dominated by small- to medium-sized transactions. Small-sized transactions (less than 10,000 sq. ft.) accounted for more than 40 percent of the transaction activity in the quarter, while medium-sized transactions (ranging between 10,000 sq. ft. and 50,000 sq. ft.) held a share of 43 percent. The share of large-sized deals (greater than 100,000 sq. ft.) was about 9 percent.
Bengaluru, followed by Hyderabad, dominated large-sized deal closures, while a few large deals were also reported in NCR and Pune as well. Large-scale deal closures were mostly dominated by tech firms and flexible space operators. Firms belonging to sectors such as research, consulting and analytics, banking, financial services & insurance (BFSI), and engineering and manufacturing also closed large-sized deals, says the report.
"...we expect further strengthening of occupier sentiment in the medium to long term, backed by corporates looking to expand or consolidate their operations," said Anshuman Magazine, chairman and CEO, India, South East Asia, Middle East and Africa, CBRE.
Tech firms, co-working firms dominate the market
Tech corporates, accounting for about a third of the leasing activity, drove office space take-up in the country during the third quarter of 2019, followed by research, consulting and analytics companies (19%) and flexible space operators (15%), the report said.
The rise in the share of flexible space operators (10% in Q2 2019) was primarily a result of their continued expansion across almost all cities. These operators took up both primary and secondary spaces in mostly core locations across cities. Other sectors such as engineering & manufacturing (7%) and BFSI (7%) also contributed to the increase in leasing activity, it said.
Increase in pre-leasing activity
Occupiers continued to future-proof their portfolios and hedge against future rental escalations by pre-leasing space across various cities. Pre-leasing activity of almost 5 million sq ft largely in Bengaluru and Chennai; followed by Hyderabad and Pune. Tech firms and BFSI firms, along with flexible space operators primarily drove quarterly pre-commitment activity.