NEW DELHI: After displaying reluctance for several quarters, corporates are starting to finalise their expansion plans, pushing office space absorption in the top seven Indian cities.
Data provided by property consultancy JLL shows that Indian and foreign companies across sectors leased 9.3 million sq ft of office space in the quarter to September, a 58% jump over the year-ago period and the highest absorption in a quarter since 2011.
Office space absorption is a key indicator of the health of an economy and improving absorption is a precursor to rising demand for housing. One million sq ft of office space can seat over 12,000 employees.
A recent CBRE study showed that office space transactions in the first nine months of 2014 generated over 2,70,000 job opportunities across the top seven cities.
"There is sustained activity and significantly large enquiries across markets," said Viral Desai, director office at Knight Frank. "Companies today are more aggressive about future commitments."
Bengaluru and the National Capital Region (NCR) led this revival, leasing almost 3 million sq ft and 2.5 million sq ft of space, respectively, in the September quarter.
India's office leasing market is dominated by US MNCs that account for 45% of space leased. "Indian companies, accounting for 30% of office space leasing, are slightly behind in executing their growth plans. However, we know that several of them are in various stages of their property hunt," said Ramesh Nair, chief operating officer business and international director at JLL India.
The office space market has seen several transactions in the last few months since the new government was sworn in. There are some significant million sq ft deals that were signed. E-commerce player Flipkart, for instance, closed India's largest office space leasing deal with the Embassy group by signing up for a 3-million sq ft custom-built campus in Bengaluru.
Tata Consultancy Services recently leased just under a million sq ft of space split between Noida and Gurgaon in the NCR. Management consulting firm Accenture is scouting for a million sq ft of office space in Bengaluru while American financial services firm Wells Fargo is looking to lease 1.2 million sq ft in the city.
According to market sources, IBM has leased 9,00,000 sq ft of space in Bengaluru's Inner Ring Road and British Telecom has leased 4,50,000 sq ft of space in the city's Outer Ring Road.
A bulk of the leasing, said Vivek Dahiya, chief executive officer at GenReal Property Advisers, is happening in the southern markets of Bengaluru, Chennai and Hyderabad while activity in the NCR too is on the rise.
"Many companies who had been evaluat ing leasing more space but had been slow in taking decisions are now closing transactions. The positivity in the economy is helping," said Dahiya.
Companies are also speeding up their leasing plans because of a short supply of ready space, which is likely to push up rentals of office space in the next 12 to 24 months, say consultants.
"Today it is getting difficult to find large spaces. To counter this, companies are already starting to reserve options for future expansion," said Desai of Knight Frank.