MUMBAI: Showing faith in India's economic growth, corporate occupiers have been lapping up office spaces for their expansion, which is reflected in the decline in office vacancy levels across the country to 15% from around 19% in 2013. The sharpest fall in pan-India vacancy levels is expected in 2016 and 2017 when it will ease below 13%, said a JLL India report.
Vacancy in Bengaluru has come down to 4% from 16% in 2011. In Pune, it is down to 5% from 18%, while Chennai has seen it easing from 32% in 2010 to 12.5%. India's office space absorption in 2015, at around 36 million sq ft, was the second highest after 2011, and Bengaluru, Pune, Hyderabad and Chennai led this bull run. "While the absorption in 2015 was similar to 2011, it was distributed across new and old buildings this time unlike 2011 when it was largely limited to newly-completed buildings. While demand in 2011 was due to lower rentals after the global financial crisis; in 2015, it was largely thanks to implementation of growth plans by corporates," said Ramesh Nair, COO - Business & International Director, JLL India.
Nair said that demand had surpassed supply in 2014 for the first time since 2007, adding that the demand forecast looks strong in the medium term.
"Things are improving. We are seeing good enquiries for picking up space, both on outright and lease basis and all of this is for expansion and future growth. Time taken for conclusion of transactions from enquiry stage is also reducing as choices are less in the backdrop of low vacancy levels," said Vipul Shah, MD, Parinee Group, that has commercial projects at Bandra-Kurla Complex and Andheri.
"We are also looking for opportunities, including land parcels and joint ventures, to build more commercial projects," Shah added.
The improvement in business scenario is prompting developers to build fresh supply across cities in order to meet growing demand. Developers, who had been shying away from commercial projects after burning their fingers between 2009 and 2012 owing to a tough market and lack of funding, are returning to the market. Companies, especially in the ecommerce, telecom and healthcare sectors, have been snapping up office space across major cities. India's office space absorption in 2015, at around 36 million sq ft, was the second highest after 2011.
While 2015 saw a significant growth in absorption, demand for commercial spaces has been on the rise steadily since 2013. As demand continues to rise, occupiers will start taking up spaces in less ideal locations. Grade-B buildings in the good areas will also see good absorption.
Rentals across Indian cities rose in 2015 with the pace being faster in the secondary business districts (SBDs) and certain peripheral business districts (PBDs) of tier-I cities than in the established central business districts (CBDs). The micro markets, which saw more leasing activity in different cities in 2015, will continue to see action this year as well, while lesser-preferred locations will see a higher vacancy rate.