Office space absorption up 17% in 2015 at 35 mn sq ft

Demand from IT/ITeS, e-commerce companies and start-ups caused upward climb

Office space absorption rose by 17 per cent this year to 35 million sq ft in seven major cities, mainly due to demand from IT/ITeS, e-commerce companies and start-ups, according to property consultant JLL India.

The absorption stood at 29.9 million sq ft last year.

Office rentals also increased in the seven cities - Delhi-NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad and Kolkata.

"India's office space absorption during 2015 stood at 35 million sq ft - the second-highest figure in the country's history after 2011", JLL India Chairman and Country Head Anuj Puri said in a report.

In 2011, the office space leasing figure stood at 37 million sq ft.

JLL said that the demand for office space this year rose on the back of corporates implementing their growth plans. In 2011, the demand came from occupiers taking advantage of low rents after the global financial crisis.

"In 2015, office space demand was mainly driven by IT/ ITeS, e-commerce, start-ups and large consulting firms", the consultant said, adding that the players in many other sectors like FMCG, BFSI (front office), manufacturing, telecom and pharma did not come into the market.

On rentals, JLL said it rose across cities in 2015.

The pace of increase in rentals was faster in the secondary business districts (SBDs) and certain peripheral business districts (PBDs) of tier-I cities than in the established central business districts (CBDs).

While pan-India vacancy still stands at 16 per cent, realistic vacancy actually stands around 8-9 per cent as the total vacant supply is not always relevant for corporate occupiers.

Cities such as Pune, Bengaluru, Hyderabad and Chennai have a vacancy rate of just 5-10 per cent, prompting the need for fresh supply to meet the growing demand.

The consultant said that the developers have not been constructing commercial projects due to low returns. However, as rents climb faster, developers will start constructing - at least in the good markets.