Office space vacancy to fall in 2 years on higher demand

Increase in office space demand, particularly from the e-commerce companies, could lead to a fall in vacancy level to below 13 per cent in the seven major cities by 2017.
Office space vacancy has been on decline since 2013 and the trend continued during the last year as well. The vacancy levels stood at about 16 per cent by 2015-end in Delhi-NCR, Mumbai, Chennai, Kolkata, Bengaluru, Pune and Hyderabad, according to property consultant JLL India.
India's office space absorption in 2015, at around 36 million sq ft, was the second highest after 2011, it said in a report.
"Showing faith in India's economic growth, corporate occupiers have been in expansion mode. Companies, especially in the e-commerce, telecom and healthcare sectors, have been snapping up office space across major cities," said Ramesh Nair, COO - Business & International Director, of JLL India.

This expansion is also reflected by the decline in office vacancy levels across the country, he added.
"Vacancy in Bengaluru has reduced from 16 per cent in 2011 to 4 per cent today. Chennai's vacancy has come down from 32 per cent in 2010 to 12.5 per cent today.

"Hyderabad has also seen its vacancy reduce from 17 per cent in 2009 to less than 10 per cent now. Similarly, in Pune, vacancy has reduced from 18 per cent in previous years to 5 per cent today. The sharpest fall in pan-India vacancy is expected between 2016 and 2017 when it will be slightly less than 13 per cent," JLL India said.

Talking about the demand side, the consultant said the absorption of office space in 2015 was distributed across new and old buildings unlike 2011 when it was largely limited to newly-completed buildings.
"Also, while the demand in 2011 was due to lower rentals after the global financial crisis; in 2015, it was largely thanks to implementation of growth plans by corporates. Interestingly, in 2014, demand had surpassed supply for the first time since 2007," Nair said, adding that demand forecast looks strong in the medium-term.
To meet growing demand, developers are gearing up to build fresh supply across cities.
"Developers, who had been shying away from commercial projects after burning their fingers between 2009 and 2012 owing to a lack of understanding of the commercial asset class and lack of funding, are returning to the market," he added.