Approximately 22% drop in absorption for office space in Q1 2015 over Q1 2014 CBRE
Total office space take up in Q1 2015 stood at more than 5 million sq. ft.a drop of approximately 50% quarter-on-quarter (q-o-q) and a 22% drop year-on-year
Apr 11, 2015
Source : Business Standard

 

Mumbai: Stable rate of new office space addition; occupiers increasingly opting for bespoke solutions and committing to under construction projects.

 

Following a particularly strong fourth quarter of 2014, the first quarter of 2015 reported comparatively slow activity on the office market front across leading cities. This apparent demand drop was largely because most corporate space occupiers were still strategizing their real estate plans for the year during the period, with fewer transaction decisions being implemented in the first quarter.

 

According to CBRE's India Office Market View for Q1 2015, which reports on the status of Grade A office space across the country's leading cities, total office space take up in Q1 2015 stood at more than 5 million sq. ft.a drop of approximately 50% quarter-on-quarter (q-o-q) and a 22% drop year-on-year. It is also worth noting that a number of corporates pre-committed to office space in leading under construction properties across the metros, which positively supported transaction activity during the quarter. In terms of transaction activities, therefore, it is the forthcoming months and quarters that will see the fruition of stratagems and negotiations made during the first quarter.

 

Commenting on the findings of the report, Mr. Anshuman Magazine, Chairman and Managing Director of CBRE, South Asia said, Demand for prime office space is expected to pick up in forthcoming months as occupiers implement their business plans across cities. The quantum of pre-commitments made during the first quarter is likely to boost space take up, going forward. An emerging trend likely to gain momentum is that of tier II cities, such as Chennai and Hyderabad, attracting demand for bespoke solutions from large corporate occupiers for their real estate requirements.

 

More than 8 million sq. ft. of fresh investment-grade office space was completed across key cities during the quarter, meanwhile, indicating a q-o-q increase of around 4%. In line with trends observed during the second half of 2014, the first three months of the year saw completion of a number of large-sized office projects across the Delhi National Capital Region (NCR), Mumbai, Bangalore, Hyderabad, and Pune. New phases of existing SEZ projects were also completed in Gurgaon.

 

It was observed during the quarter, that pent up supply delayed from previous quarters had started to exert pressures across marketsparticularly in the case of NCR, which led project completions, and contributed to around 53% of the total supply released during the quarter. Bangalore, Hyderabad, Pune and Chennai also reported fresh project completions. A subdued demand climate together with the significant supply addition of new office space led to an increase in vacancy rates in Delhi NCR; while vacancy levels in Mumbai and Bangalore inched downwards. On the supply front, it is also worth noting that the slippage rate in prominent cities such as Bangalore and Mumbai was particularly high, with more than 80% of the supply that was initially lined up for completion during the first quarter getting pushed further into 2015. This was largely because most of this supply was located in far flung peripheral locations; and occupiers continued to adopt a cautious approach while considering such locations for their future operations.

 

Industry sectors such as IT/ITeS and banking / financial services are likely to remain the dominant demand drivers for office space, with engineering / manufacturing, e-commerce, telecommunications and pharmaceuticals being the other active sectors driving demand in this real estate space in India.

 

Rental values remained largely stable across most centralized office locations, with the exception of Bangalore where rentals appreciated by 5-6% q-o-q in core office locations due to strong occupier demand. Sustained occupier interest in well-leased IT and IT SEZ projects also led to a q-o-q rental appreciation of 5-6% across select micro-markets in Gurgaon, Bangalore, Chennai and Pune.

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