The office space market in 2019 bettered its earlier benchmark of 2018 by 22 percent, amounting to a gross absorption of 57.72 mn sq ft with demand largely emanating from US-based firms, according to a new report.
The year 2020 too, is likely to be marked with strong demand for quality commercial office space driven by several factors like expansion, consolidation and upgrade to employee centric workspaces but the pace of growth is likely to be moderate, the report by global property consultant Savills said.
Co-working spaces continued its momentum at 14 percent share of office leasing
UK-based Savills has pegged the gross office leasing at 61-62 million sq ft in 2020 across six cities- Bengaluru, Chennai, Hyderabad, Mumbai, National Capital Region (NCR) and Pune.
The trinity of Bengaluru-NCR-Hyderabad set a new absorption-benchmark, as they reached 15.6 mn sq.ft, 10.9 mn sq.ft and 9.5 mn sq.ft. respectively, averaging over 10 mn sq.ft.. per market of absorption amongst them.
The city of Hyderabad recorded the highest year-on-year increase in terms of absorption. At 9.5 mn sq.ft. in 2019, Hyderabad witnessed a growth of 53.2% from the 6.2 mn sq.ft.. space absorption in the previous year. It was also the city which added maximum stock at 9.9 mn sq.ft, the report said.
The combined absorption of the top three southern cities-Bengaluru, Hyderabad and Chennai constituted over 57 percent of total absorption in 2019 compared to 52 percent recorded in 2018.
NCR is the third notable highlight of the year and was the only one apart from Bengaluru to go past 10 mn sq ft absorption, a YOY growth of 13.7%.
Chennai also registered good growth in fresh leasing and along with large volume pre-commitments, its absorption volumes reached almost 8 mn sq.ft, a YOY growth of nearly 60 percent.
With absorptions of 6.9 mn sq.ft., Mumbai's annual increase was 11.3 percent in 2019. Pune, having recorded a high in the previous year, was the only market to register almost flat year in 2019.
"The commercial segment, especially, the office space market is going from strength to strength, beating its own record of 47.3 mn sq.ft. in 2018, to set a new one at 57.7 mn sq.ft. in 2019. This growth symbolises that office space across key markets is on a strong footing, based largely on India's increasing capabilities in technology sector, rise in flexible spaces, formalisation of the Indian economy and the growing offshoring by western corporations," said Anurag Mathur, CEO, Savills India.
Base rents across India showed improvements in varying degrees. Bengaluru and Chennai recorded significant increases between 15% and 20% in different micro-markets; while Hyderabad’s rentals remained constant for its higher-grade stock. Mumbai and Pune recorded 4-5% annual increase in rents, as NCR’s rents remained stable through 2019.
Bengaluru continues to lead in 2019 by a large margin, saw leasing activity to the tune of 15.6 mn sq.ft.. with a YOY growth of 15.4%. The city saw additional completions of around 12 mn sq ft with majority completions being on the ORR, eastern peripheral business district including Brookefield and north Bengaluru, the report said.
Demand for office space was driven primarily by technology, financial service companies and flexible working spaces as well. Together they constituted approximately 70% of total leasing activity during 2019.
The National Capital Region (NCR) recorded an oﬃce space absorption increase of 14 percent YOY in 2019 to reach 10.9 mn sq.ft, the report said.
In NCR, Gurgaon saw a YOY growth of 15%, while Noida recorded a 26 percent YOY increase, it said.
In Delhi, vacancy levels in Jasola stood above 15 percent levels, whereas in Saket, the vacancy levels were approximately 10%. In all other micro-markets of Delhi, the vacancies recorded were around 5 percent.
In Gurgaon, vacancy levels in Sohna Road, SPR and Golf Course Extension Road were reported to be high at around 30 percent. DLF Cyber City, Golf Course Road and Udyog Vihar reported lower vacancies. The levels in Noida Expressway micro-market were reported at 14-15% percent whereas Sector 62 was higher, close to 25 percent.
As for demand outlook, the NCR market is expected to have a YOY growth of 8-10 percent in leasing activity over the next year. The expected absorption could reach 12 mn sq.ft during the year 2020, the report said.
Mumbai Metropolitan Region (MMR) saw an absorption of 6.9 mn sq.ft.., a YOY increase of 11 percent in 2019. Financial Services, Technology, along with Engineering & Manufacturing sectors constituted over 60 percent of total leasing activity during 2019. Coworking spaces accounted for approximately 9 percent of the total absorption.
In Mumbai, absorption is likely to increase by 4-5 percent in 2020 and is expected to reach 7.2 mn sq.ft, the report noted.