0ffice market to stay strong despite falling growth numbers: Colliers Report

Bengaluru continues to top charts/ record year for Hyderabad

Gurgaon, January 21, 2017: Despite the forecast of falling growth estimates for India GDP to 6.8-7.0% due to short-term adverse repercussions of demonetization, Colliers believes that the outlook for the office sector will remain positive this year. The policy changes that the government is implementing should help improve business confidence in India resulting in robust office leasing demand in coming years. Occupiers looking for large, quality space should consider making pre-commitments to new office buildings, especially in the technology-driven markets like Bengaluru, Hyderabad and Pune

Bengaluru (Bangalore) remained on a high growth trajectory and maintained its leading status among the key cities by retaining a 31% share followed by Delhi-NCR, which represented 18% of the total occupier demand. Hyderabad and Chennai stood on 13% each while Mumbai, Pune and Kolkata accounted for 14%, 9% and 2% respectively of the overall leasing volume.

In 2016, 27.2 million sqft (2.53 million sq metres) of grade A new supply was released into the market.This was insufficient to cope with the very strong demand especially in markets such as Bengaluru,Hyderabad, and Pune and resulted in a significant fall in vacancy levels and an increase in office rents in most of the micromarkets in these cities.

“In the technology driven markets such as Hyderabad, Bangalore, Pune the demand-supply gap is likely to remain a concern in short term. Tenant appetite for higher quality offices has been reflected in new leases being executed at above market rates in select grade A buildings in all the cities. Expecting a similar trend in 2017 as well, we cannot rule out the possibility of upward pressure on rents at least in the first half of the year in most of the preferred markets for grade A buildings”,said Surabhi Arora, Senior Associate Director, Research at Colliers International.

Bengaluru

2016 reaffirms Bengaluru’s pivotal position in office sector demand across the top nine cities accounting for highest percentage of overall India leasing volume. During 2016, office sector demand remained healthy recording 12.8 million sqft (1,188,300 sq meters) gross absorption,the highest leasing across top nine Indian cities. IT-ITeS companies were on an expansion spree; vigorous leasing to continue in 2017. . Despite significant supply pipeline, low vacancy in select micromarkets should exert upward pressure on rents.

Hyderabad

For Hyderabad, demand outpaced supply in 2016; which is likely to remain strong in 2017. In terms of occupier demand, 2016 was a record year for Hyderabad with the highest leasing volume since 2011.Recording a 37% YOY increase in gross leasing, nearly 5.6 million sqft (521,250 sq meters) was leased in the city outstripping the new supply addition of about 2.3 million sqft (216,900 sq meters). Hyderabad’s office market is in transition, and property owners have aggressively increased rents in 2016 as available office space diminished with massive expansion by IT occupiers. In the short term, supply should complement demand.

NCR

NCR recorded gross absorption at 7.6 million sqft(706,063 sq meters)at par with 2015 numbers. Gurgaon with 51% of total NCR absorption remained the preferred choice among occupiers followed by NOIDA and Delhi that shared about 36% and 13%, respectively.

Interestingly, in Gurgaon while the technology sector remained the key driver of office leasing activity with a 32% share, the stake reduced significantly from the last year’s number of 64%. In NOIDA, the technology sector remained the key demand driver with 60% share.

Due to a dearth of quality office space in other technology-driven markets like Pune and Bengaluru, we may see supply-led demand in coming quarters resulting in increased absorption volumes in NCR.

Pune

Narrow supply pipeline likely to tighten the leasing market for Pune. In the leasing segment, conversion and inquiries remained consistent throughout 2016; however, largesized deals significantly declined due to the scarcity of quality supply. Absorption dwindled from 2015 to 3.9million sqft (3,66,038sq metres) for the year 2016, a 22% decrease since 2015.Demand-supply gap is likely to remain a concern in coming quarters.

Mumbai

Muted leasing volume remained subdued due to demand and short supply. Although leasing activity was relatively restrained in H1 2016, it accelerated in H2 2016 with several large deal closures. The overall leasing volume for 2016 was 5.6 million sqft (520,257 sq meters), a 15% percent decrease from 2015. Although rents are likely to remain stable across most micromarkets, we believe availability of Grade A buildings at affordable rent will remain a concern for the next several years.

Chennai

Occupier preference for OMR continued with OMR-Post Toll belt gaining substantial traction. During 2016, office sector demand in Chennai remained levelled with the previous year with total gross leasing

volume recorded at nearly 5.3 million sqft (493,700 sqmeters). In fact, closure of a few large transactions in Q4 2016 helped Chennai to achieve a gross absorption level of 4% above that of 2015. In our opinion, peripheral micromarkets should continue to gain occupier preference as most of the new supply is concentrated in this belt, mainly comprising Old Mahabalipuram Road (OMR).

Kolkata

Rents remained stable as occupier favourable conditions persisted. Leasing activity was relatively subdued during the year as only 0.9 million sqft (79,896 sq metres) of gross absorption was recorded marking a 13% decline from 2015 level. Most of the deals were small with an average size of 8,000 sqft (743 sq metres).Amid high vacancy and affordable rents in Sector V and the peripheral districts of Rajarhat and New Town, occupiers will probably continue to opt for Grade A office space in these micromarkets for expansion and up gradation.

Corporate Comm India(CCI Newswire)