Top Indian cities absorb 38 mn sq ft office space, highest in 5 years

Absorption rate is 18% higher than the previous year; annual office demand was led by Bengaluru with 32% share of total absorption across leading cities

The country’s top seven cities absorbed 38 million sq ft of prime office space last year, the highest till date, says a new study.

The absorption in 2015 is 18 per cent higher than the previous year.

The annual office demand was led by Bengaluru with a 32 per cent share of the total absorption across leading cities during the year, followed by the National Capital Region  with a 23 per cent share. Suburban and peripheral office districts of major cities attracted steady occupier demand in the fourth quarter of 2015. Prominent micro-markets included Gurgaon in Delhi-NCR; Powai, Vikhroli, Kanjurmarg and Thane-Navi Mumbai in Mumbai; the Outer Ring Road (ORR) in Bengaluru; the IT Corridor in Hyderabad; the Old Mahabalipuram Road stretch along Perungudi in Chennai; Viman Nagar in Pune; and Salt Lake Sector V in Kolkata.

According to the findings of CBRE’s latest report, India Office Market View for Q4 2015, absorption of Grade-A office space across key cities in India witnessed a quarterly growth of approximately 26 per cent during the October-December period, translating into more than 12 million sq ft of leased office space.

Commenting on the findings of the report, Anshuman Magazine, chairman and managing director of CBRE, South Asia, said, “India is an established outsourcing destination for various multinationals, which continue to outsource their operations to major cities in India--a key reason for a sustained spurt in office transaction activity. This coupled with a steady macroeconomic climate and an overall positive market sentiment during the year encouraged corporate office occupier demand in 2015.”

IT/ITeS firms across the seven leading cities garnered a share of more than 56 per cent of the entire transaction activity reported during the year. Other sectors such as banking/financial services, engineering/manufacturing, e-commerce and research/consulting also saw significant traction, collectively contributing about 29 per cent to the total transacted space in the year, CBRE said.

Meanwhile, fresh supply of office space development rose to a five-year high of around 45 per cent during the year over the previous year. These development completions were led by Bengaluru, followed by Delhi NCR, Hyderabad and Mumbai. The fourth quarter, in particular, saw new supply addition of more than 11 million sq ft. Most of the supply during the quarter came up in Gurgaon and Noida in Delhi NCR; ORR and Sarjapur Road in Bengaluru; IT and Extended IT Corridors in Hyderabad; Baner and Hinjewadi in Pune; and Andheri (East) in Mumbai, it said.

“Corporate occupier demand for office space is expected to continue to grow in the coming months. Expansion and consolidation strategies of corporate firms will continue to be in greenfield projects and pre-committed space in under-construction projects. Occupiers will evaluate their office space requirements on the basis of infrastructure development and cost effective investment-grade office space,” said Ram Chandnani, managing director, transactions services, CBRE South Asia.

Rental values remained largely stable across most micro-markets of leading cities during the quarter. Demand for newly completed properties, however, led to rental growth in select peripheral micro-markets. A marginal rental appreciation of around 1-5 per cent quarter on quarter was reported at ORR in Bengaluru; DLF Cybercity in Gurgaon; Guindy, Vadapalani and Mayor Ramnathan Chettiar Nagar in Chennai; and the IT and Extended IT Corridors in Hyderabad. Rentals were stable for the most part in the central business districts of most leading cities, barring Bengaluru and Pune.