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Despite the demonetisation exercise and recent layoffs by technology companies, due to automation and changing technology, commercial markets continued to remain resilient, backed by sustained expansion plans of the major occupiers. The gross office take-up in India amounted to 9.6 million sq ft (8,82,800 sq m) in Q2 2017, representing a nominal two per cent increase Q-o-Q from 9.3 million sq ft, according to a report ‘India Office Property Market Overview Q2 2017’, by Colliers International. The total office absorption in H1 2017, stood at nearly 18.9 million sq ft, marginally down by two per cent from, H1 2016, the report said.
“The real estate industry has seen a series of challenging regulatory impediments in its performances, with demonetisation, the Real Estate (Regulation and Development) Act (RERA) and now, the Goods and Services Tax (GST). In the post-GST era, service tax (15 per cent) in commercial leases, will be replaced with GST at 18 per cent. However, we expect demand to remain steady, with some large activities of consolidations and relocations in Bengaluru, Mumbai, Pune and the National Capital Region (NCR). Hyderabad witnessed a sharp rise in demand, from 0.51 million sq ft to 1.6 million sq ft Q-o-Q, which is more than double. Overall office demand is expected to see a steady rise in take-up, for next few quarters,” said Ravi Ahuja, executive director, office services and investment sales, Colliers International India.
As expected, Bengaluru continued to dominate the office market and recorded an overwhelming share of 34 per cent of total leasing volume, followed by the NCR at 19 per cent and Hyderabad at 17 per cent. Mumbai, Chennai, Pune and Kolkata accounted for 13 per cent, 11 per cent, four per cent and two per cent respectively, on overall leasing volume.
“Despite the recent layoffs by technology companies, due to automation and changing technology, we expect the commercial market to remain resilient, backed by sustained expansion plans of the major occupiers. July onwards, India adopted a multi-tiered GST structure. Although it will result in a marginal increase in occupancy costs, we do not expect any adverse impact on demand. GST’s implementation should bring operational efficiency and widen the tax base, leading to higher revenues, infrastructure spending and more investment in the country. The influence of the GST and increasing interests of investors in the warehousing sector, should be noticeable events to watch out for in H2 2017,” added Surabhi Arora, senior associate director, research, Colliers International India.
Bengaluru office market overview
With approximately 3.25 million sq ft (0.3 million sq m) of gross absorption, Bengaluru remained the most active office market in India. Although, the Q-o-Q numbers represent a marginal decrease of about seven per cent (3.5 million sq ft in Q1 2017) in gross absorption, we expect the leasing momentum to continue in the coming quarters. About 43 per cent of the total leasing was concentrated in special economic zones, driven by a couple of large-size (above 1,00,000 sq ft) transactions.
We expect leasing activity to be dominated by small and mid-size transactions, as BTS options are expected to remain the preferred choice among occupiers with large size requirements in prime corridors. Despite a supply pipeline of nearly 3.0 million sq ft (0.3 million sq m) in H2 2017, new occupiers with large-size requirements, may find it difficult to lock in long-term leases. The small and mid-size occupiers should consider flexible workspaces, to leverage on their location and the ease of operation they provide.
NCR office market overview
The NCR recorded gross absorption at 1.8 million sq ft (from 1.57 million sq ft in Q1 2017). Gurugram, with 50 per cent of total NCR absorption, remained the preferred choice among occupiers, followed by Noida and Delhi that shared about 30 per cent and 20 per cent, respectively.
The gross leasing volume in Gurugram reached about 0.9 million sq ft (83,612 sq m), marginally up from last quarter numbers. Noida’s commercial market witnessed sustained interest from occupiers in Q2 2017, resulting in the absorption of about 0.5 million sq ft (46,400 sq m) of Grade A office space, marginally up from the previous quarter. About 70 per cent of this demand was contributed by the technology sector, including e-commerce and fintech companies. In Delhi, the corporate leasing activity remained stable, with gross absorption standing at only about 0.42 million sq ft (39,019 sq m), up by 27 per cent Q-o-Q.
Hyderabad office market overview
Commercial leasing revived with about 1.6 million sq ft (1,45,300 sq m) of gross absorption in Q2 2017 versus just 0.51 million sq ft (47,300 sq m) gross leasing activity in Q1 2017. Regardless of the anxieties about layoffs and automation in the technology sector, the industrial sector continued to expand and accounted for 92 per cent of overall office leasing in the city. As per Colliers International, the central business district (CBD), off-CBD and PBD micro-markets, recorded five per cent, four per cent and two per cent of the remaining share in gross leasing, respectively.
Mumbai office market overview
In Q2 2017, the gross absorption was recorded at 1.2 million sq ft (0.1 million sq m), down from 1.7 million sq ft in Q1 2017. Except for a few large transactions, the average deal size remained low at 15,400 sq ft (1,430 sq m). Despite a 29 per cent decline in transaction volume from Q1 2017, we expect absorption to improve in Q3, with a few large-size transactions in the pipeline, totaling to 0.75 million sq ft (70,000 sq m). We expect future demand to be reinforced by data centres, co-working operators and logistics and warehousing companies, looking at the increased enquiries from these sectors.
Chennai office market overview
The gross absorption in Q2 2017 for Chennai, was recorded at about 1.1 million sq ft (92,903 sq m), the same as in Q1 2017. The market witnessed a shift in occupier focus towards the OMR-post-toll belt, which increased its share in gross leasing to 33 per cent in Q2 2017. With sturdy expansion and relocations, OMR-pre-toll accounted for 26 per cent of the market, while the intra-city locations in CBD and off-CBD micro-markets accounted for 12 per cent and 16 per cent, respectively. Moreover, with sizeable transactions in Ambattur, the micro-market represented seven per cent of gross absorption and the remaining six per cent was recorded in Mount Poonamallee High (MPH) Road.
Pune office market overview
The unavailability of quality supply, further affected the overall leasing volume in Q2 2017. The gross leasing was recorded at only 0.4 million sq ft (37,861 sq m) in Q2, which represents a 48 per cent decrease from Q1 2017 (0.78 million sq ft). With no supply pipeline visible in 2017, we expect the absorption rate to remain low, in the coming quarters. Although Pune is one of the major IT/ITeS markets in India, banking, financial services and insurance (BFSI) accounted for a 30 per cent share of total absorption, followed by IT/ITeS (26 per cent), other industries (23 per cent), engineering and manufacturing (13 per cent) and healthcare (seven per cent).
Kolkata office market overview
Sustained leasing momentum was observed in Q2 2017 with 0.2 million sq ft (18,500 sq m) of gross absorption. This was similar to the absorption witnessed in Q1. The occupier demand was driven by relocations and expansions. The bulk of leasing volume, equating to 79 per cent, was concentrated in Sector V, while peripheral areas like New Town and Rajarhat accounted for an 18 per cent share. The remaining three per cent of the transaction volume, was observed at CBD locations. H1 2017 witnessed more enquiries than the last two years. Hence, we expect leasing activity to intensify in the upcoming quarters.