REALTY BYTES: INDIA’S OFFICE MARKET LEASING CROSSES 32 MILLION SQ. FT. IN FIRST THREE QUARTERS

October 11, 2018: CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm today announced the findings of its latest India Office MarketView – Q3 2018 report. Leasing activity improved by 12% on a quarterly basis to touch about 10.9 million sq. ft. during Q3 2018. Among key markets, Bangalore, Mumbai, Hyderabad and NCR accounted for about 80% of the leasing activity. Quarterly space take-up increased across all cities except NCR, Chennai and Hyderabad. Overall, the first three quarters of the year recorded a take-up of about 32 mn sq. ft., an increase of about 7% y-o-y. Even as several mid-to-large-sized deals were reported in Bangalore, Hyderabad, Pune and Gurgaon, more than 30% of the transaction activity was reported in SEZ space.

Anshuman Magazine, Chairman, India and South East Asia, CBRE said, “India’s economic growth continued on its upward trajectory and real estate services (along with financial and professional services) sector contributed to this economic surge as it grew from 5% in the previous quarter to 6.5% during the review period. Sectors such as BFSI, engineering & manufacturing, and agile/ co-working/business centers are likely to account for a larger share in leasing activity going forward”.SMALL-TO-MEDIUM-SIZED TRANSACTIONS (LESS THAN 50,000 SQ. FT.) DOMINATED SPACE TAKE-UPSimilar to the previous quarters, office space take-up was dominated by small- and medium-sized transactions. Mid-sized transactions (ranging between 10,000 sq. ft. and 50,000 sq. ft.) accounted for about 45% of the transaction activity, while small-sized transactions (less than 10,000 sq. ft.) had a 42% share. The share of large-sized deals (greater than 100,000 sq. ft.) increased to 7% during the quarter.Bangalore, followed by Hyderabad, dominated large-sized deal closures, while a few such deals were also reported in Mumbai, Pune and Chennai.Tech corporates (with a share of 48%) drove office space take-up in the country during Q3 2018. They were followed by engineering and manufacturing companies (14%) and co-working/business center operators (11%). These operators took up both primary and secondary spaces in primarily core locations. Other sectors such as BFSI (7%) also contributed to the increase in leasing activity. The agile workspace sector continued to witness a strong growth momentum, with global and Indian majors expanding their footprint in tier 1 and tier 2 cities. Co-working / business operators leased about 3.3 mn sq. ft. of space in the first three quarters of the year, almost doubling their take-up reported in the first three quarters of 2017. Ram Chandnani, Managing Director, Advisory & Transaction Services, India, CBRE South Asia Pvt. Ltd. further added, “The trend of agile spaces is rising during a booming start-up era, even as corporates are drawing up fluid expansion and occupation plans.  Occupiers are also expected to keep strong checks on space utilization ratios and innovation in workplace strategies while expanding their footprint and implementing their expansion plans.  Also, SEZs are expected to account for a larger share of the upcoming supply over the next few quarters. Given the approaching sunset date, we anticipate an increase in demand for SEZ s space. “RISE IN PRE-LEASING ACTIVITY  Pre-leasing activity rose in Q3 2018, largely in Bangalore and Hyderabad, driven primarily by tech and BFSI corporates. Overall, the country witnessed more than 12 mn sq. ft. of pre-commitment transactions in mostly under-construction assets in the first three quarters of the year.On the other hand, supply addition in Q3 2018 dipped marginally by about 7% q-o-q to touch about 7.1 million sq. ft. Bangalore and Kochi accounted for 60% of the quarterly supply addition, followed by Mumbai and Hyderabad. Except Pune, Kolkata and Kochi, all cities reported a dip in development completions on a quarterly basis. Slippages were reported in cities such as NCR, Mumbai and Hyderabad.

City Highlights for Q3 2018:

Bangalore

Increase in leasing activity on a quarterly basis

Supply addition in NBD, PBD and CBD

Marginal increase in rental values in EBD, SBD and ORR on a quarterly basis

Supply addition was witnessed in the form of medium-to-large-sized non-SEZ and SEZ developments in NBD Yelahanka, Thanisandra and Bellary Road; and PBD Whitefield, along with a small-sized non-SEZ development in CBD Off-Infantry Road.

Quarterly SEZ absorption increased due to primary leasing in NBD and PBD.  

Delhi-NCR

Gurgaon dominated leasing activity

Rents remained largely stable across all micro-markets

Sustained occupier interest resulted in Noida Expressway, Extended Golf Course Road and DLF Cybercity accounting for nearly half of the region’s leasing activity. Most of the deals were closed in secondary spaces.  

Leasing activity continued to be driven by small-to-medium-sized transactions, although the quarter did witness the completion of one large-sized deal (greater than 100,000 sq. ft.) in Noida.

Mumbai

Quarterly increase in leasing activity

Supply addition in Navi Mumbai and Western Suburbs 1

Stable rental values across all micro-markets

Space take-up was concentrated in Navi Mumbai and Western Suburbs 1 and 2. Primary space take-up dominated leasing activity, owing to the availability of space in recently completed investment-grade developments. Secondary space take-up was witnessed in Western Suburbs 1 Andheri and Eastern Suburbs Powai.

Co-working / business center operators continued to drive leasing activity across the city, followed by tech and BFSI firms.

Small-to-medium-sized deals dominated leasing activity, with a few large-sized deals (greater than 100,000 sq. ft.) closed in Navi Mumbai.

Chennai

Supply addition in OMR Zone I and Off-CBD; consisted of three small-sized IT developments in Off-CBD Guindy, and one small-sized IT development in OMR Zone I

Nearly 1-3% quarterly increase in rental values in core areas

Leasing activity concentrated in Mount Poonamallee Road (MPH road), Off-CBD and OMR Zone III

Hyderabad

Supply addition witnessed in IT Corridor

Rental value increase recorded in Extended IT Corridor

The culmination of pre-commitments in completed developments primarily drove leasing activity

Although small-to-medium-sized deals dominated leasing activity, the quarter also witnessed the closure of several large-sized deals 

Pune

Increase in leasing activity on a quarterly basis

Supply addition witnessed in CBD and SBD

Stable rental values across all micro-markets

Space take-up remained concentrated across PBD Hinjewadi and CBD. Primary leasing continued to dominate space take-up, owing to availability of space in recently completed investment-grade developments

Kolkata

Increase in leasing activity on a quarterly basis

Supply addition observed in PBD

Stable rental values across all micro-markets

Leasing activity was primarily concentrated in PBD Salt Lake V and Rajarhat. Most of the closed transactions involved primary space take-up across small-to-medium-sized space formats

Kochi

Leasing activity increased on a quarterly basis

Supply addition witnessed in SBD

Rental values remained stable

Space take-up was primarily concentrated in SBD Kakkanad and Off-CBD Edapally. Leasing activity was mainly driven by the conclusion of small-to-medium-sized deals in newly completed developments

Ahmedabad

Quarterly increase in leasing activity

Rise in rental values in SBD on a quarterly basis

Space take-up was primarily witnessed in CBD, followed by PBD. It was mainly concentrated in non-IT developments


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