Office space absorption up by 46% at over 10.2 million sq ft:

Office space absorption increased by 46%, to over 10.2 million sq ft in the second quarter of 2016 on improved demand from corporates, according to property consultant CBRE.

The National Capital Region (Delhi, Gurgaon and Noida) and Bengaluru, accounted for almost 50% of the total space take-up in the April-June quarter.

The IT/ITeS sector continued to be the largest demand driver for office space, accounting for over 50% of the total leasing activity in the quarter, followed by engineering and manufacturing firms and banking and financial services sector, CBRE stated in a report. It noted that nearly 7 million sq ft of fresh office space came into the market during this period.

More than 17 million sq ft of corporate real estate was absorbed across the leading cities in the first half of 2016. Rental values
The central business districts (CBDs) of several cities witnessed a change in rental values, with the exception of Delhi-NCR, Mumbai and Hyderabad.

In the case of Bangalore, Chennai and Pune, the CBD rental values increased by about 2%-6% quarter-on-quarter due to sustained demand levels, while Kolkata’s CBD witnessed a 4%-6% quarter-on-quarter rise in rentals.

With limited SEZ supply expected in the market, the segment witnessed 2%-12% quarter-on-quarter increase in rents across Chennai, Pune, Hyderabad and Kolkata.

Gross leasing activity in India was recorded at 36.4 million sq ft for the first nine months of 2018, up by 26 per cent year-on-year (YoY), according to the ‘India Office Overview and Outlook, Q3 2018’ by Colliers International. Pan-India demand for Grade A office space was driven by the technology sector (48 per cent) in Q3 2018, followed by banking and insurance, representing 19 per cent of the total leasing volume. The need for workspace efficiency and a collaborative work environment, have increased demand for flexible workspace, which accounted for 13 per cent of pan-India office leasing volume in Q3 2018, the report added.

Due to slower decision making on the part of occupiers, gross absorption declined by 60 per cent QoQ and 50 per cent YoY. Q3 2018 noted leasing activity of 0.80 million sq ft, with most occupiers expanding operations in the city. Contributing to the decline, deals in excess of 50,000 sq ft comprised 43 per cent of leasing activity, compared to 69 per cent in Q2 2018.

Considering the expansion plans of occupiers, we expect demand to regain momentum in Q4 2018 and we expect the year 2018 to record 5.5 million sq ft of leasing activity. We forecast a robust supply pipeline of 19.8 million sq ft until 2021, under various stage of construction in Gurgaon.

The office market recorded gross absorption of 0.14 million sq ft in Q3 2018, representing a quarterly contraction of 6.7 per cent.

Over the last three quarters, the continued decline in demand can be attributed to a lack of Grade A space in major micro-markets such as the CBD and Aerocity, as evidenced by the CBD recording a significant decline in take up, compared to last quarter.

About 4.8 million sq ft of office space is expected to be completed during 2018-2021, the majority of which will be in south Delhi.