Ahmedabad posts highest decline in net office space absorption; down by 75%

With leasing slowing down due to low quality supply, net office space absorption fell highest at 75 per cent in Ahmedabad for the first quarter of calendar year 2015, according to a latest report by real estate consultants Cushman & Wakefield.

Covering top eight cities of India including Ahmedabad, Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune, the report recorded overall net office space absorption of 7.9 million square feet (msf) in Q1 2015 (Jan -Mar'2015) recording a year - on - year (y-o-y) increase of 35 per cent over same time last year. Net absorption refers to the new / additional occupation activity and includes only the incremental new space take-up in instances of relocations and expansion from within the city; does not include lease renewals and relocations to same sized office spaces.

Both office space supply and net absorption fell by 76 per cent and 75 per cent, respectively in Ahmedabad for the period. As against Q1 2014 office supply of 1 million sq ft, Ahmedabad saw merely 242,000 sq ft of supply in Q1 of 2015. Similarly, while net absorption stood at 607,500 sq ft in first quarter of last year 2014, the same fell to 154,000 sq ft in Q1 2015, leading to vacancy levels of 19.2 per cent in Ahmedabad office space segment.

Nationally, Chennai at a whopping 1,462 per cent and Bengaluru at 512 per cent saw the highest increase in net absorption as demand from IT-ITeS companies remain strongest for the southern cities in the improving business environment. NCR recorded a decline in net absorption which was lower by 57 per cent in Q1 2015 over corresponding time last year. Other markets that saw significant decline in net absorption were Ahmedabad (-75 per cent) and Hyderabad (-37 per cent). Supply in the meantime recorded a decline of 2 per cent in the first quarter of the New Year and was restricted to approximately 7.4 msf.

"Despite a slowdown in Q1 2015 in net absorption of office spaces, the trend will remain positive for 2015 backed by the overall economic sentiments of the country and a very strong push being applied by the government in creating a more business conducive environment. The resultant would be a stronger demand from the services and BFSI sectors. We expect to see a growth in the office space absorption approximately 15 per cent by the end of 2015. Basis the same we expect total net absorption to be recorded between 36 - 37 msf at the end of 2015, majority of the demand coming from the IT/ITeS and the BFSI sector in key markets of Bangalore, Delhi-NCR and Mumbai," said Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.

As per the report, cost benefits and increased availability of Grade A spaces in markets like Ahmedabad, Chennai and Kolkata (albeit on much smaller scale than core markets) are expected to grow the transaction volumes within these cities on account of spill over demand or requirements from back office operations.

"Ahmedabad also saw a decline of 75 per cent in net absorption attributable to a unique trend that slows down leasing when quality supply is low. In Q1 2015, Ahmedabad saw a decline of over 60 per cent in supply as well due to which there was limited leasing activities," the report further stated.