Office leasing down 25%

Slow pace of project execution attributed as the reason behind decline

Slow pace of execution of office property projects led to a 25 per cent decline in leasing of such properties in the top cities in the first nine months of this calendar year, compared with the corresponding period last year, says a new study.

About 20 million square feet was absorbed in the first three quarters of this year, versus 26.5 million sq ft in the year-ago period, according to data culled by property consultant JLL India.

“The principal reason for this decline in absorption is the slow pace of project executions. So far, the supply in 2017 has been just 18 million sq ft as against 28 million sq ft during the same time in 2016,” said Ramesh Nair, chief executive officer and country head at JLL India.

Nair said the completion of several projects in markets such as the National Capital Region, Hyderabad and Mumbai has been pushed forward to 2018 due to the effect of demonetisation and, in some cases, delays in receiving occupancy certificates. 

“In particular, Q1 saw completions of just 1.2 million sq ft, which was mainly because of the effect of demonetisation causing absorption to settle at a low 4.3 million sq ft in the quarter,” he said.

Tirumal Govindraj, managing director-management at RMZ Corp, one of the biggest developers of office properties in the country, said construction of properties cannot keep pace with absorption and this was what has happened in recent years. “Bengaluru absorbed 10 million sq ft and Hyderabad absorbed 6-7 million sq ft last year. How can we keep pace with this kind of absorption,” he said.

Investors agreed with this. “There is a lack of Grade-A office supply in cities such as Pune and Hyderabad. That is why absorption is low. But demand for such properties is still there,” said Sandeep Chadha, partner-real estate investments, Milestone Capital Advisors. Grade-A buildings are centrally air-conditioned, well-maintained buildings.

Chada said vacancies were also declining in cities such as Pune and Hyderabad.

According to Nair of JLL, there has been a gradual improvement in new supply in Q2 and Q3 of 2017, and improvement in leasing in select markets was likely to settle the pan-India absorption at about 28-29 million sq ft by the end of 2017. 

“In 2018, absorption is projected to improve further, to about 33-34 million sq ft, with a healthy supply pipeline,” he added.

LEASING SPACE

• About 20 million sq ft was absorbed in the first three quarters of this year, versus 26.5 million sq ft in the year-ago period

• The principal reason for this decline in absorption is the slow pace of project executions

• So far, the supply in 2017 has been just 18 million sq ft as against 28 million sq ft during the same time in 2016

• Q1 saw completions of just 1.2 million sq ft, which was mainly because of the effect of demonetisation