India office market view
Mar 20, 2014
Source : The Times of India


MUMBAI: India’s economic momentum in 2013 was one of the most sluggish in over a decade. Signs of recovery, however, were visible from the second half of the year, with GDP growth touching 4.8 per cent during the July-September period, largely on account of improved performances in the agriculture, financing, insurance and business services sectors, as against a 4.4 per cent growth rate during the April-June period. Furthermore, positive export growth and reduction in imports, helped in bringing down the current account deficit.

However, rising retail and wholesale inflation, mainly due to a spurt in food prices and continued decline in industrial output, have subdued the impact of a modest recovery rate. Against such a backdrop of moderate recovery in global and domestic economies and continued inflationary pressures, the Reserve Bank of India (RBI) in its December 2013 mid-quarter monetary review, kept key policy rates unchanged. This move was a positive signal for the economy as a whole and the realty sector in particular, indicative of the central bank beginning to address larger concerns of economic growth, consumer spending and investment.

While most of the market focus remained on small-and medium-sized transactions, there were few big ticket transactions finalized in sectors such as IT, pharmaceuticals and banking services, in cities of Gurgaon, Bengaluru, Hyderabad and Pune. The presence of abundant, cost-effective office spaces in the peripheries of these leading cities, attracted corporate occupiers to lease space and implement their impending expansion and/or consolidation plans.

The fourth quarter closed at a total of about 8.2 million sq ft of office space absorption, a growth of approximately 35 per cent quarter-on-quarter and an appreciation of about 14 per cent y-o-y. Transaction activity was mostly led by Bengaluru, Delhi-NCR and Mumbai; while smaller cities such as Chennai and Hyderabad, saw stagnation in their transaction market shares compared to last year.

A key feature in this review period was an increased occupier interest in SEZ space, with large space commitments witnessed in Delhi-NCR, Bangalore and Hyderabad.


The CBD of Nariman Point, Fort and Cuffe Parade, witnessed low demand levels and that too, primarily for small format office spaces in selected prime buildings; while absorption was recorded at a meager 10,000 sq ft in the last quarter of 2013. This region did not witness any supply addition and vacancy was estimated in the range of 6-7 per cent. On account of subdued demand levels, rental values in commercial developments continued their downward trend and declined further by 4-5 per cent on a q-o-q basis.

The Extended Business District (EBD) of Lower Parel, witnessed an increase in enquiries for office space from the financial and media segments but transaction closures remained low in the quarter under review. Rental values in non-IT developments remained stable, while values appreciated by 3-4 per cent in IT buildings, owing to enhanced demand levels and limited availability of office space. No new supply addition was observed and vacancy was estimated in the range of 23-24 per cent. The micro-markets of Worli and Prabhadevi also witnessed sluggish transaction activity.

The Alternative Business District (ABD) of Bandra-Kurla Complex, Kurla (W) and Kalina, witnessed closure of a few small-to mid-sized transactions, resulting in absorption of around 0.10 million sq ft in the last quarter of 2013. Demand for office space remained low during the quarter, as most corporates deferred their expansion plans. Existing vacancy pressures and subdued occupier interest, led to a decline in rental values by 2-3 per cent q-o-q. Commercial leasing activity in the SBD of Andheri, Vile Parle and Jogeshwari, remained low. Owing to significant supply and low absorption levels, vacancy in this micro-market continued to remain high and was estimated in the range of 33-34 per cent. However, rental values remained stable for the review quarter, on account of increased enquiry levels for Grade A developments.

National Capital Region

The Central Business District (CBD) of Connaught Place and its surrounding areas continued to remain a priority destination for corporate occupiers, owing to its locational advantage and ease of connectivity. Although, the micro-market witnessed an increase in enquiries, transaction closures remained low during the last quarter. Leasing activity was largely led by BFSI, manufacturing and telecom segments. Leasing activity in the Secondary Business District (SBD) of Nehru Place, Saket, Jasola, Vasant Kunj and Aero City, picked up pace in the fourth quarter, with around 88,000 sq ft of office space getting absorbed, as compared to 59,000 sq ft in the previous quarter.

Rental values remained largely stable across all micro-markets over the previous quarter. The peripheral micro-market of Gurgaon continued to witness interest from occupiers, with about 1.3 million sq ft of office space getting leased during the last quarter of 2013. On the supply front, the commercial segment gained traction with close to 0.25 million sq ft of fresh supply addition on Golf Course Road, as compared to negligible supply in the previous quarter. The IT SEZ segment also witnessed supply addition to the tune of 0.7 million sq ft. Rental values remained largely stable across most micro-markets, with some appreciation witnessed in DLF Cyber City, due to sustained demand.

Noida observed a decline in demand for Grade A office spaces during the fourth quarter. On the supply side, no fresh supply addition was witnessed during the period. Leasing activity was mostly concentrated along the Noida Expressway area, accounting for more than 65 per cent of leasing activity in Noida during Q4 2013.


Office leasing activity in the CBD of MG Road, Richmond Road, Residency Road and Lavelle Road, remained limited in the fourth quarter of 2013.On the supply side, there was no fresh supply addition in this micro-market. Owing to increased occupier interest, rental values in this micro-market witnessed a marginal increase of about 3-4 per cent on a q-o-q basis. The EBD of Indira Nagar, Koramangala, Old Madras Road and CV Raman Nagar, witnessed a slight decrease in demand for small-to-medium format office spaces, with absorption recording at round 0.14 million sq ft, as compared to 0.24 million sq ft in the preceding quarter.

Rental values also remained stable, in comparison to the third quarter. Commercial leasing activity picked up in the Peripheral Business District (PBD) of Whitefield and Electronic City, with around 0.69 million sq ft of office space getting added to the existing stock in the Whitefield region. Owing to persistent demand from corporate occupiers, the Sarjapur Outer Ring Road (ORR) stretch observed healthy absorption during this review period. On the supply side, this micro-market witnessed supply addition of around 1.2 million sq ft in the fourth quarter. Owing to healthy demand/ supply dynamics, this micro-market continued to remain the growth corridor.

Office leasing activity in south Bangalore remained dormant in the fourth quarter. There were no additions to existing office stock and rental values remained at the same level as in the previous quarter. This micro-market is expected to witness a sizeable supply addition in the short-to-medium term, which is pre-committed by existing occupiers in the market. North Bangalore continued to witness significant occupier interest, as around 0.82 million sq ft of SEZ space was transacted in this micro-market.


The CBD of Anna Salai, T Nagar, RK Salai, Alwarpet and Nungambakkam, witnessed an increase in transaction activity for small-to medium-sized office spaces, with absorption recorded at around 0.13 million sq ft in the fourth quarter of 2013. No fresh supply was added to the existing stock and rental values remained at the same level as in the previous quarter. The Off/Non-CBD of MRC Nagar, Guindy, Taramani and Anna Nagar, witnessed steady transaction activity, with absorption recorded at around 0.24 million sq ft during the review period. Owing to lack of fresh supply addition, vacancy levels dropped marginally in this micro-market. Due to persistent demand from IT/ITeS occupiers in the last quarter of 2013, rental values appreciated by around 5-6 per cent for IT buildings in the area and by around 2-3 per cent for IT SEZ developments on a q-o-q basis.

The Suburban Business District (SBD) of Velachery, Perungudi and Mount Poonamallee Road, witnessed an increase in demand for IT/SEZ space, but transaction closures remained low during the quarter. Although rental values remained stable in the commercial property segment, sustained demand from IT/ITeS occupiers led to a marginal rental appreciation of 2-3 per cent in the IT and ITSEZ segments in this area.


The CBD of MG Road, Koregaon Park, Bund Garden, Kalyani Nagar, Dhole Patil, FC Road and JM Road, witnessed an increase in demand for small-to medium-sized office spaces, largely from IT/ITeS and BFSI occupiers. Around 40,000 sq ft was leased out during the quarter, as compared to 14,000 sq ft in Q3 2013. This micro-market did not witness any significant project completions and rental values maintained stability in the fourth quarter. Occupier demand continued to remain steady in the Off CBD micro-markets of Viman Nagar, Magarpatta, Aundh, Baner, Shanker Seth Road, SB Road and Nagar Road.

During the quarter, this micro-market observed closure of a few large-sized transactions (predominantly by IT/ITeS companies for their back-office operations) with absorption recorded at around 0.32 million sq ft. This micro-market also saw significant project completions in Q4 2013. Rental values in the IT and IT SEZ segment remained stable, while the commercial segment saw a marginal appreciation of about 1-2 per cent in rental values, owing to persistent demand from corporates preferring to setup their offices in this area.

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