A positive economy coupled with stronger job growth prospects and limited and targeted construction activity are expected to translate into over 37.2 million sqft of office space lease transaction in eight major cities of the country in 2016, a survey says.

A positive economy coupled with stronger job growth prospects and limited and targeted construction activity are expected to translate into over 37.2 million sqft of office space lease transaction in eight major cities of the country in 2016, a survey says. In 2015, the office market recorded about 40.21 million sq ft office space lease transactions excluding pre-commitment of another 3 million sqft in cities including Mumbai, Delhi National Capital Region (NCR), Chennai, Kolkata, Pune, Bengaluru, Gurgaon and Noida, research firm Colliers International India said in its report. This was about 15 per cent more than the absorption in 2014.

New construction continued to trend upwards, reaching nearly 32 million sq ft in 2015, up from 24 million sqft in 2014, it said. "High levels of tenant activity was evident in India in the last two years. Office vacancy in almost all the cities rationalised due to less speculative constructions.

As vacancy is expected to fall further, we expect marginal increase in rents and lowering incentives by landlords in certain micro markets, especially in Grade A buildings," Colliers India Associate Director Research Surabhi Arora said. She further said various factors such as positive corporate occupier's attitude, improved economic sentiments, controlled inflation, decreasing interest rates, improvement in manufacturing sector and increase in software export are likely to drive the sector this year. "The real estate space is likely to receive ample support from the government with initiatives like rationalisation of the capital gains tax for REITs and InvITs, subject to payment of Securities Transaction Tax (STT), relaxation in FDI norms for real estate sector, inclusion of CRE in the ambit of Real Estate Regulatory Authority (RERA) bill," Arora added.

In 2015, Bengaluru, with about 13.43 million sqft of office absorption and 12.85 million sqft of new construction continued to hold its number one position across cities. Mumbai and NCR office transaction volume reached a post-recession high of 6.57 and 9.10 million sqft in 2015, witnessing an increase of 111 per cent and 18 per cent from 2014, respectively. Pune and Kolkata shared 12 per cent and two per cent in the total office absorption.

"In 2016, occupiers across all sectors will continue to become more space efficient, doing more with less space as their leases come up for renewal. But as hiring activity is expected to increase further, firms will need more space to house additional workers," she said. According to the report, Grade A office space, rents are expected to strengthen for quality office space in almost all the micro markets.

Article authored by Surabhi Arora, Associate Director, Research | Featured on Moneycontrol.com, India Today and DNA

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