- Maintaining the momentum of the first quarter of 2018, office take up continued to boom with,
As per Colliers International, the overall absorption for H1 2018 now stands at ~ 24 million sq ft.
Besides its cost-effectiveness and flexibility, the increasing uncertainty among occupiers regarding their future headcount growth is driving the demand of coworking spaces. Colliers expects the coworking concept to continue expanding notably in cities such as Mumbai, Bengaluru and NCR.
Institutional investment in commercial assets also remained solid with investors continuing to buy pre-leased and buildings near completion. In Q2, the Indiabulls fund was reported as having bought Trivium, a 1.0 million sq ft (0.1 million sq m) multi-phase commercial development in Hyderabad. Blackstone LP acquired One Indiabulls Park (2.4 million sq ft or 0.22 million sq m); and Ascendas agreed to buy two towers in the QPark technology park in Navi Mumbai.
In Q2 2018, Bengaluru retained its leading position in pan-India office space absorption, recording 4.3 million sq ft of gross absorption. A YoY increase of 13% in gross absorption indicates occupiers are sufficiently confident in their business to take more space in the market. A total of 8.2 million sq ft of gross leasing has been recorded in H1 2018, out of Colliers’ yearly projection of 14 million sq ft by the end of 2018.
ORR continued its dominance as the most popular micromarket in Q2 2018, accounting for 50% of overall demand. Other popular micromarkets include the Central Business District (CBD) accounting for 20% of demand, the Secondary Business District (SBD) accounting for 12%, Whitefield for 9% and North for 6% of demand.
NCR accounted for 28% of the total office absorption pie in India, next to Bengaluru at ~3.5 million sq ft in Q2, 2018.
Following the previous quarter's trend, the demand momentum continued in Q2 2018. With gross office uptake at 2 million sq ft in Q2, uptake in H1 2018 amounted to 3.7 million sq ft .an increase of 111% YOY. Technology companies accounted for 33% of the total leasing volume followed by Banking, Finance and Insurance companies with 27% and the flexible workspace operators with 20%.
In line with our forecast, the Golf Course Extension Road (GCER) started capturing the largest share of the total demand. In Q2 GCER accounted for 30% of the leasing volume leaving behind traditionally favorable markets such as Cybercity at 18%, Golf Course Road at 15%, Udyog Vihar at 11% and MG Road at 10%.
Absorption levels in Delhi stayed low during Q2 2018 with just 0.15 million sq ft of gross absorption, down 42% QOQ. The YTD office space take up was around 0.4 million sq ft. Aerocity accounted for around 35% of the overall leasing activity, followed by the CBD with 32% of leasing and Nehru Place with only 10%.
In Q2 2018, NOIDA's office market recorded about 1.0 million sq ft of gross absorption, taking the YTD numbers to 2.0 million sq ft This is about double the same period in 2017. Amongst major occupiers, the technology sector accounted for around 42% of gross absorption followed by engineering and manufacturing sector at 23%, banking, financial services and insurance sector at 15%.
Pune recorded gross absorption of 0.8 million sq ft during Q2 2018, which is about the same YOY. Owing to the robust absorption in Q1 2018, the half-year absorption stood at 2.7 million sq ft.Fifty per cent of the half-yearly leasing was driven by technology occupiers, while the remainder comprised Banking and Financial Services Institutions, manufacturing and flexible workspace operators. The Q2 absorption was concentrated in the Kharadi and Hinjewadi micromarkets, together accounting for half of the pie. Continued interest was witnessed in Special Economic Zones projects that accounted for the remaining 50% share.
Mumbai recorded gross absorption of 1.7 million sq ft in Q2 2018 taking the total for H1 2018 to 3.7 million sq ft. This represents a 27% increase from H1 2017. In Q2 2018, leasing activity was concentrated in the micromarkets of Andheri East and Bandra-Kurla Complex (BKC), with shares of 38% and 14% respectively. Demand continued to be driven by flexible workspace operators which took a 20% share, followed by BFSI with a 16% share and then the IT-ITeS, consulting and logistics sectors. The preferred micromarkets for flexible workspace operators were Andheri East, BKC, Navi Mumbai and Worli/Prabhadevi.
With about 1.08 million sq ft of leasing volume in Q2 2018, Chennai's gross absorption has reached around 2 million sq ft (0.18 million sq m) in the first half of 2018, like the same period in 2017. We expect the gross absorption in second half of the year to be higher than the H1 2018, in line with the absorption trends in 2015-2017. In Q2 2018, the OMR pre-toll micromarket accounted for a maximum share of city's total office leasing at 28%. The MPH road and CBD micromarkets accounted for a share of about 20% of gross absorption each followed by Off CBD at 16%, OMR post-toll at 14%, Grand Southern Trunk (GST) Road and Ambattur at 1% each.
With about 1.0 million sq ft of office leasing in Q2 2018, Hyderabad recorded approximately 1.5 million sq ft (0.1 million sq m) of gross absorption in H1 2018, representing a 38% dip from H1 2017. In our opinion, the considerable dip in office leasing is primarily due to the limited availability of Grade A office supply in the Secondary Business District (SBD), the city's favourite market, where the vacancy rate is as low as 3.0%.
Nonetheless, about 1.1 million sq ft of space has been pre-committed in Q2 2018 indicating a healthy demand for Grade A office space.
Q2 ended with gross absorption of about 0.2 million sq ft, similar to Q1 2018. Sector V and Peripheral Business District (PBD) accounted for 70% and 20% of the leasing volume respectively. A scarcity of Grade A stock in the Central Business District (CBD) led to lower levels of absorption with most transactions being 3,000-8,000 sq ft. Space take-up by flexible workspace operators like Apeejay Business Center indicates a growth of occupier interest in flexible workspace centers. Demand came primarily from the Engineering and Manufacturing sector, accounting for 43% of total leasing. This was followed by Information Technology enabled Services (IT/ITeS) at 22% and Banking, Finance and Insurance Services (BFSI) which accounted for about 15% of total leasing.
“The growth outlook for commercial real estate remains optimistic driven by financial and business services sectors across cities. In our opinion, the forecasted robust economic growth should drive demand for Grade A office space and increase institutional investments in premium commercial office assets in the next three years. Occupiers should realign their office portfolios as per the new workforce requirements by making use of flexible workspace while developers should focus on adding premium amenities in their upcoming development to meet the changing occupiers’ requirements”, says Surabhi Arora, Senior Associate Director, Research at Colliers International India.
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