Bengaluru remains frontrunner in office leasing with a 31 percent share of overall demand followed by NCR at 25 percent
Despite a slowdown in the overall economy, the office market has continued to perform well in 2017. With about 10 million sq ft (0.9 million sq m) of office leasing in the third quarter, gross absorption totalled around 28.9 million sq ft (2.7 million sq m) over the first nine months, says Colliers Research.
Although the number represents a marginal decline of about 1 percent from last year's absorption during the same period, we expect leasing momentum to pick up in the fourth quarter of 2017 and maintain Colliers International’s yearly forecast of more than 40 million sq ft (3.7 million sq m) for 2017.
“As expected, Bengaluru has remained the frontrunner in office leasing with a 31 percent share of overall demand followed by NCR at 25 percent, Hyderabad and Chennai at 12 percent each, Mumbai on 10 percent, Pune on 8 percent and Kolkata on 2 percent. With an 8 percent share of total leasing volume in Q3 2017, coworking operators are making their presence felt in the market. Overall, the commercial market will remain stable despite the economic slowdown and increasing concern about disruption from artificial intelligence, automation and stringent data security laws”, says Ritesh Sachdev, Senior Executive Director, Occupier Services, Colliers International India.
While the traditional demand drivers of the Indian office market, technology occupiers, represented 39 percent of total absorption, banking, financial services and insurance (BFSI) also formed the bulk of transactions and accounted for 17 percent of total absorption. On the supply side, ~90 million sq ft is under various stages of construction, which would likely to increase the current total stock by 16 percent in the next three years, says Colliers Research.
“Despite the temporary slowdown in the economy in the aftermath of several major government reforms executed in 2017 office market remained upbeat with increased investor activity, sustained leasing demand from technology companies and growing leasing interest from various industry occupiers like manufacturing, co-working, logistics and warehousing. We expect the commercial real estate market to remain on track with sustained demand from occupiers in short to medium term. Rents are likely to see an upward growth trajectory especially in Grade A buildings; an average annual increase of 4-5 percent over the next three years likely in India across cities”, says Surabhi Arora, Senior Associate Director, Research, Colliers International India.
In the third quarter of 2017, Bengaluru witnessed gross absorption of 3.0 million sq ft (0.27 million sq m) indicating a drop of 5 percent q-o-q. However, the city recorded gross absorption of 10.0 million sq ft (0.9 million sq m) over the first nine months, representing a considerable increase of 16.5 percent from the same period last year.
With about 1.23 million sq ft (0.1 million sq m) Q3 gross absorption, Chennai has reached around 3.25 million sq ft (0.28 million sq m) office leasing so far this year, indicating sustained demand. Gross absorption recorded an increase of 7 percent compared to the third quarter of 2016.
NCR: “We expect the commercial real estate market for NCR to remain on track with sustained demand from occupiers in short to medium term. Rental values are likely to remain stable across most micro-markets in Gurgaon, with an expectation of a slight increase in CBD of Gurgaon. Rental values in Delhi will strengthen further due to consistent demand and limited Grade A stock/supply. Noida continues to be a tenant favourable market given high vacancy levels” added Sanjay Chatrath, Executive Director, NCR at Colliers International India
In the third quarter of 2017, total gross leasing volume for the Delhi market amounted to 0.26 million sq ft (0.02 million sq m) representing a significant increase of 30 percent in comparison to the third quarter in 2016.
The Noida market recorded about 0.6 million sq ft (0.05 million sq m) of gross absorption which was 20 percent up from the previous quarter.
With ~1.58 million sq ft (0.15 million sq m) of gross absorption in Q3, 2017, Gurugram was the most active office market in NCR. Gross absorption over the first nine months accounted to 3.3 million sq ft (0.3 million sq m) which is about 14 percent up from the same period in 2016. About 30 percent of the total lease volume was concentrated on Golf Course Road followed by Sohna Road 18 percent, Cyber City 14 percent, Golf Course Extension Road 13 percent and NH8 including Udyog Vihar 16 percent. MG Road and Institutional sectors represented only 1 percent and 4 percent, respectively.
Commercial leasing witnessed a drop of about 21 percent in third quarter of 2017 in Hyderabad with about 1.24 million sq ft (0.12 million sq m) of gross absorption. The YTD absorption is recorded as 3.32 million sq ft (0.31 million sq m).
During the third quarter of 2017, commercial market demand in Kolkata was in line with Q1 and Q2 absorption numbers, leading to a gross absorption of 0.2 million sq ft (18,150 sq m).Gross office absorption in Mumbai amounted to only 1.0 million sq ft (0.1 million sq m) in the third quarter of 2017, making it 4.0 million sq ft (0.4 million sq ft) YTD, which is similar to the YTD absorption in the same period last year.