Gurgaon, April, 13, 2017 –Five months on from demonetisation, occupiers' markets across India's major cities have seen no discernible adverse impact. On the back of recovering economy, the India office market is likely to remain firm in the coming quarters. The gross office take-up in India amounted to 9.3 million sq ft (863,998 sq m). Although Q1 leasing volume represents a 25% decline q-o-q, volume is up by 8% y-o-y. The market also recorded about 2.5 million sq ft (232,258 sq m) of pre-commitments signifying healthy demand.
The macro-economic scenario indicates revival in consumption base demand and the recent government push for digitisation of money transactions should continue to drive demand from fintech sector. However, concern of skill gap in technology sector is on the rise. Increased demand for high skilled work such as automation, Internet of Things (IoT), big data and analytics instead of process-based work may lead to a short-term skill gap in the tech sector and disrupt expansion plan of technology companies in the next 2-3 years. In our opinion, this may lead to more demand coming from consolidation”, Surabhi Arora, Senior Associate Director, Research, Colliers International India.
The Bengaluru (Bangalore) market maintained its top position across nine cities despite low vacancy and recorded an overwhelming share of 37% of total absorption. Mumbai and Delhi NCR followed with shares of 18% and 17% respectively in total absorption. Chennai, Pune, Hyderabad and Kolkata accounted for 11%, 9%, 6% and 2% respectively in the overall leasing volume. We expect demand to remain firm in 2017, driven by technology and banking, financial services and insurance companies (BFSI).
“Office markets of Bengaluru, Chennai and Pune continue to witness restricted supply and will see upward pressure on prime rentals going forward. In South India, Hyderabad continues to gain incremental demand in its Hitech/ Gatchibowli precincts, suggesting IT / ITes occupiers are driven with supply and few of them have considered Hyderabad as an alternate location to Bengaluru, due to availability of prime supply causing significant take up's over the last couple of quarters”, Ravi Ahuja, Executive Director, Office Services & Investment Sales at Colliers International India. Ravi further added, “Mumbai and NCR have a decent pipeline of corporate office consolidations and relocations, with Mumbai (in Navi Mumbai) gearing up to bring in huge prime quality supply in its new-found IT corridor at Thane Belapur Road - will result in witnessing significant take ups for large IT players who want to relocate from expensive micro markets like Goregaon, LBS Marg to less than a dollar rent per sq.ft. per month markets”.
Robust leasing trend leads to a 33% annual increase in absorption. In Q1 2017, Bengaluru retained its top position in attracting overall occupier interest across nine key Indian cities. Driven by a handful of large transactions and numerous mid-sized space requirements (less than 100,000 sq ft), gross leasing volume was recorded at nearly 3.5 mn sq ft (326,900 sq m) with about 33% increase year on year (y-o-y). Outer Ring Road continued to account for a major share in the total leasing volume accounting for 59%. followed by SBD (13%).
Though we expect occupier demand to remain upbeat in these locations, the upcoming new supply is unlikely to meet the rising demand in coming quarters resulting in upward pressure on rents. Absorption of pre-committed spaces coupled with expected demand upsurge is likely to outpace the upcoming supply pipeline of 8.1 mn sq ft (757,160 sq m) by the year end.
In Q1- 2017, gross leasing reached 0.51 million sq ft (48,800 sq m), which is at par with the previous quarter. In comparison to Q1 2016, this figure represents a 60% decrease. However, in Colliers opinion the surge in leasing in Q1 2016 reflected strong pent-up demand in the city because of a stable political environment. In line with past trends, concentration of Grade A properties in SBD garnered the maximum share of overall quarterly leasing. In Q1 2017, SBD accounted for an 80% share followed by PBD (14%) and Off-CBD (6%).
Gross absorption in Q1 2017 for Chennai amounted to about 1 million sq ft (92,900 sq m). Although Q1 2017 numbers represent a 57% drop on a q-o-q basis, we expect the demand for office space to remain healthy as about 1.2 million sq ft (111,500 sq m) of pre-committed space has been recorded in the upcoming SEZs in the OMR-Post Toll district leveraging its proximity to city's airport. The OMR-Pre Toll areas and Central Business District (CBD) benefited from maximum occupier attention, accounting for 26% and 23% of total demand in Q1 2017, respectively.
NCR recorded gross absorption at 1.6 million sq ft, Gurgaon with 54% of total NCR absorption remained the preferred choice among occupiers followed by NOIDA and Delhi that shared about 25% and 21% respectively.
The gross leasing volume in Gurgaon reached about 0.84 million sq ft (78,038 sq m), down by 11% compared to Q4 2016. Leasing momentum in NOIDA remained relatively subdued with overall transaction volume reaching 0.4 million sq ft (37,161 sq m), down by 11% on a q-o-q basis. Corporate leasing activity remained relatively subdued in Delhi with the gross absorption standing at only about 0.33 million sq ft (30,658 sq m), down by 15% q-o-q. We attribute the decline in leasing to the decrease in average deal size which stood at 18,550 sq ft (1718 sq m) in Q1 2017 as compared to 21,200 sq ft (1969 sq m) reported in 2016.
In Q1 2017, relocation transactions outnumbered expansions and new entrants, thereby dominating the office leasing market in Mumbai. With absorption of 1.7 million sq ft (157,935 sq m), the leasing market remained subdued in Q1 2017 recording a 10% decline q-o-q. Although leasing remained subdued, increased interest from investors is evident in the commercial property market. We observed a few outright purchases in Q1 2017.
Absorption continued its downward trend in Pune primarily due to the inadequate supply of quality office space in the city. Absorption in Q1 2017 came down to 0.8 million sq ft (72853 sq m) from 1.3 million sq ft (119,845 sq m) in Q4 2016. Large occupiers such as FIS Global Business Solutions and Cognizant preferred to renew the leases in the existing facilities.With most of the new supply scheduled for completion in 2018, vacancy in Pune market is likely to remain tight in the short term. We cannot rule out the possibility of further increase in rent.
Q1 2017 started on a positive note for Kolkata with gross absorption of 0.2 million sq ft (18,580 sq m). This excludes a large pre-commitment by Technology major Cognizant which has opted for a built to suit (BTS) facility of 0.36 million sq ft (33,445 sq m) in Candor Tech space SEZ in the New Town area. We expect tenant favourable conditions to attract domestic companies and Information Technology majors to expand operations mainly in the New Town, Rajarhat and Sector V micromarkets.
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