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Over the past year, the real estate sector has been troubled by the overall economic slowdown and the liquidity crisis. Nevertheless, one segment in the realty sector has defied this negative trend – leasing activity in the commercial real estate segment has performed surprisingly well, in 2019. CBRE South Asia Pvt Ltd recently released a report titled ‘India Flexible Space Digest – Q3 2019’. According to the report, the overall flexible space take-up in Q3 2019, stood at two million sq ft. Another report by Colliers International India, said that during 2019, Bengaluru, Hyderabad and Chennai saw a 23% rise in the demand for office space over the previous year, with gross absorption at 30.6 million sq ft. This strong demand growth is led by expansionary activity by occupiers in the technology and IT-BPM space, ramp-up by flexible workspace players and investments of companies in global capability centres.
Performance of leasing activity in the flexible office space segment
- Overall leasing in 2019, as of November, stood at 7.2 million sq ft.
- Mumbai, Bengaluru and Hyderabad accounted for about 70% of the space take-up.
- Bengaluru dominated the flexible space stock, followed by Delhi-NCR and Mumbai.
- Driven by hybrid space operators, medium-sized deals dominated leasing activity.
According to Anshuman Magazine, chairman and CEO, India, South-East Asia, Middle-East and Africa, CBRE, landlords will increasingly cater to occupier interest, by providing space-as-a-service on demand. “Given that the Indian flexible space market is one of the biggest across APAC, we anticipate that this segment will remain high on the investors’ radar, as well. Thus, we expect flexible space leasing to be around 9 million sq ft in 2019 and around 9-10 million sq ft in 2020,” says Magazine.
Reports reveal that Bengaluru dominated the flexible space stock with 7.8 million sq ft, followed by Delhi-NCR and Mumbai, with 6.7 million sq ft and 4.6 million sq ft, respectively. Flexible space penetration was highest in Delhi-NCR (at 6.1%) and Bengaluru (4.6%), followed by Mumbai, Pune, and Hyderabad at 3.7%, 3.8% and 3.5%, respectively.
The number of small to medium-sized deals (20,000 to 1,00,000 sq ft) rose from 49% in Q2 2019 to 54% in Q3 2019. However, the number of large-sized deals (exceeding 1,00,000 sq ft) dipped from 14% in Q2 2019 to 12% in Q3 2019.
Coworking space and flexible office space lead commercial real estate leasing
The CBRE report indicates that flexible space operators are now going beyond providing the usual amenities to improve employee experiences, with amenities such as café, gym, etc. Many are tying up with cab service providers, restaurants, online food chains and other online e-retailers. In addition to launching apps that allow tenants to book/modify requests for varied services, such as conference rooms, private desks, community events, cabs and food, many operators are also providing inter-group social platforms, where occupiers can post business requirements and conduct operations.
3 trends behind increased commercial leasing
Commercial real estate outlook 2019-2020
“2019 ended on a positive note, with Chennai and Hyderabad hitting an all-time high. Vacancies in the southern cities is hovering in single digits, signalling strong occupier sentiments. Overall, this year should witness a new peak demand of about 52 million sq ft, as occupiers continue to remain enthused about India. We expect technology companies to continue their strong streak in 2020, with flexible workspaces slowing their expansion phase,” says Megha Maan, senior associate director, research, Colliers International India.
Experts point out that the government’s key focus, for a better part of the last decade, was on simplification of the business environment. Implementation of the GST and corporate tax reforms, have been pivotal in creating a conducive and simplified business environment, which is expected to attract global majors to set up offices in India. In the near future, expansion, as well as new entries, are likely to drive the growth momentum in the commercial real estate segment.