Lower supply and subdued demand drag office space leasing by 10% in Jan-Mar

Net office space leasing declined by 10 per cent in eight major cities during January-March at 5 million sq ft mainly on lower supply and subdued demand from IT industry, property consultant Cushman & Wakefield today said.

In the first quarter of 2017, net office space absorption stood at 5.52 million sq ft in eight cities - Ahmedabad, Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune.

Supply of office space declined 14 per cent to 5.38 million sq ft in January-March 2018 as against 6.24 million sq ft in the year-ago period, Cushman & Wakefield (C&W) said in a statement.

"We are likely to see sustainable leasing this year as the impact from Brexit, GST has dissipated and corporates are now firming up their growth plans. We expect leasing by pharma and healthcare, BFSI and co-working sectors to flourish in 2018," C&W India Country Head & MD Anshul Jain said.

As per the data, leasing of office space rose 40 per cent to 1.65 million sq ft in Bengaluru during January-March 2018. In Delhi-NCR, net absorption of office space went up 47 per cent to 1.12 million sq ft.

Office space leasing in Hyderabad rose 34 per cent to 1.21 million sq ft, while Ahmedabad saw 9 per cent increase to 0.10 million sq ft during the review period.

In the rest four cities, net office space leasing fell. Chennai saw a sharp fall from 0.79 million sq ft to minus 0.16 million sq ft, while leasing in Kolkata dropped from 0.12 million sq ft to 0.09 million sq ft.

Office leasing in Mumbai declined from 0.52 million sq ft to 0.48 million sq ft. Pune saw 57 per cent decline to 0.5 million sq ft.

Sector-wise, the consultant said IT-BPM (business process management) share in total gross leasing declined to 37 per cent in March quarter 2018 from 46 per cent in the year-ago period.

"This substantial drop in share comes at a time when the IT-BPM sector is grappling with challenges on several fronts, ranging from protectionist policies in countries such as US, advent of robotics and Artificial intelligence (AI), and lower IT spending," the consultant said.

During the quarter, IT companies leased smaller offices at an average of 23,000 sq ft from an average of 35,000 sq ft in March quarter 2017.

"Currently, the IT-BPM industry is going through a new phase of growth wherein hiring is restrained in the face of newer technologies like robotics, artificial intelligence. However, in subsequent quarters, we expect IT-BPM companies to step up hiring for new skills required for enabling newer technology. Some big-ticket deals continue to take place in this IT-BPM space, and we expect that to continue in subsequent quarters," Jain said.