Prime office demand soars 10-quarter high led by IT/ITeS cos

Demand for prime office space touched a ten quarter high of approximately 11 million sq. ft. for the September quarter, led by IT/ITeS firms that accounted for about 54 percent of the office transaction activity, as per the findings of CBRE’s latest India Office MarketView Report - Q3 2016.

The quarter recorded a 9 percent growth on a q-o-q basis and 14 percent on a y-o-y basis. As on September 30, 2016, overall prime office space absorption across the seven leading cities was about 28 million sq. ft. for the year.

Reflecting improvement and advancement in overall economic sentiment, with both domestic and international corporates remaining upbeat on their entry/expansion strategies in the country, the demand was highest in Bangalore (24 percent) followed by Hyderabad (17 percent),Mumbai (16 percent), Chennai (16 percent) and Pune (13 percent).

“The commercial real estate market in India continues to grow at a steady pace. Positive changes in policy and regulations havegiven a further boost to the sector. The year 2015 was a record year – with the segment witnessing the highest ever annual office absorption. With just a few months left till the end of the year, I am optimistic that this number will be met, if not surpassed,” said Anshuman Magazine, Chairman –India & South East Asia, CBRE

Besides the IT/ITeS sector, BFSI, and Engineering & Manufacturing were the other sectors driving demand for office space. Both these sectors accounted for about 10-11 percent share each in quarterly space absorption, mostly led by transactions closed in Mumbai and Chennai.

With respect to the supply side, office supply addition in the third quarter witnessed a marginal up-tick, rising by about 9 percent on a q-o-q basis and 29 percent on a y-o-y basis. Mumbai and Chennai together accounted for almost 65 percent of the new supply completed during the quarter, followed by Kolkata (16 percent).

“India continues to be a key outsourcing location among global corporates and this is reflective in the steady growth in demand for prime office space. A recent trend that has been noted is the increase in demand for small to medium sized office space, not just in the metros, but also in smaller cities.

Additionally, the increasing buzz around REITs in India (with the first listing likely to occur in the coming months), better alignment of developers with compliances under the RERA Act (which also covers the commercial segment), and trends in the global outsourcing industry are also likely to impact the commercial real estate sector in the coming quarters. ” said Mr. Ram Chandnani, Managing Director – Transactions Services, CBRE South Asia Pvt. Ltd.

As per the report, rental growth has now moved to the relatively smaller markets of Chennai, Hyderabad and Pune; although amongst the relatively bigger markets Bangalore continues to experience rental growth. Decreasing space availability coupled with rising occupier interest led to a 1-10 percent q-o-q rental growth in most peripheral micro-markets of these cities across the IT, Non IT and SEZ segments. Sustained occupier interest also led to a quarterly rental growth of about 1-7 percent in the CBD’s of Bangalore, Pune and Chennai. This rental growth might sustain in supply-deficient prime locations in the coming quarters; although the rate of this growth might vary across cities.x