Office space leasing up marginally in NCR despite slowdown

In first nine months of 2012, office space absorption stood at 4.8 million sq ft

Office space absorption in NCR, the largest office market in the country, is slightly higher at 4.9 million sq ft during January-September period of this year despite economic slowdown in India as well as globally, according to property consultant Knight Frank.

In the first nine months of 2012, office space absorption stood at 4.8 million sq ft.

"The NCR (national capital region) office market has remained rock solid amidst economic woes. The fact that office space take-up during the first nine months of 2013 has marginally exceeded that of the same period in 2012 clearly indicates strong fundamentals in the NCR office market."

Gurgaon remains at the forefront of both new office space and absorption in the market, the consultant noted.

"Considering the current run rate of transactions and the level of pre-commitments, total absorption for the current year is likely to be in the range of 6.3-6.8 million sq ft. This is commendable given the weak global and domestic economic scenario," the report said.

The consultant projected that the total absorption for the current year would marginally exceed the 2012 level.

"NCR is the largest office market in the country with an operational stock of 118 million sq ft of which 93 million sq ft is occupied, resulting in a vacancy of 21%," Knight Frank said.

The consultant attributed the upward movement in vacancy due to an additional 20 million sq ft of office space in the year 2010 and 2011.

Knight Frank pointed out that even though there has been remarkable improvement in occupiers' interest this year, absorption levels still fall short by 20% compared to 2011 when nearly 5.8 million sq ft of space was taken up.

A total of 173 transactions were recorded during January- September 2013 as against 163 transactions during the same period in 2012. The weighted average rental value stood at Rs 53/sq ft compared to Rs 56 in the year-ago period.

Majority of these big transactions took place in Gurgaon, clearly showing a preference for the market. Simultaneously, there was a notable rise in the number of smaller transactions with an area less than 5,000 sq ft due to increasing non-IT transactions.

Nearly 30% of the absorption was contributed by the IT/ITeS sector which accounted for 1.5 million sq ft of office space during the first nine months of 2013, which is a substantial dip of 51% compared with the same period in 2011.

On future outlook, Knight Frank said that leasing activity is expected to witness moderate improvement as corporates align their real estate strategies towards consolidation and relocation for cost benefits.

"Rental values are expected to move in narrow ranges as demand remains buoyant and supply is constrained especially in select micro-markets of Gurgaon," the consultant said.