Approximately 11 million sq.ft. of prime office space absorbed in Q3, 2016 across the leading cities in India; highest absorption recorded in the past 10 quarters

First 9 months of 2016 witnessed office absorption of about 28 million sq.ft. 

New Delhi, October 19, 2016– As per the findings of CBRE’s latest India Office Market View Report – Q3 2016, demand for prime office space reached a ten quarter high of approximately 11 million sq. ft. for the July – September period. The quarter recorded a growth of 9% on a q-o-q basis and 14% on a y-o-y basis. As on September 30, 2016, overall prime office space absorption across the seven leading cities was about 28 million sq.ft. for the year.

The demand was led by Bangalore (24%), Hyderabad (17%) and Mumbai (16%), followed by Chennai (16%) and Pune (13%). This increase in demand is an indication of an improvement in overall economic sentiment, with both domestic and international corporates remaining upbeat on their entry/expansion strategies.

Commenting on the findings of the report, Mr. Anshuman Magazine, Chairman –India & South East Asia, CBRE said, “The commercial real estate market in India continues to grow at a steady pace. Positive changes in policy and regulations have given a further boost to the sector. The year 2015was a record year – with the segment witnessing the highest ever annual office absorption. With just a few months left till the end of the year, I am optimistic that this number will be met, if not surpassed.”

A sector-wise analysis of the quarter’s office space take-up revealed that IT/ITeS firms continued to lead office transaction activity, accounting for about 54% of the deal closures. Besides the IT/ITeS sector, BFSI, and Engineering &Manufacturing were the other sectors driving demand for office space. Both these sectors accounted for about 10-11% share each in quarterly space absorption, mostly led by transactions closed in Mumbai and Chennai.

With respect to the supply side, office supply addition in the third quarter witnessed a marginal up-tick, rising by about 9% on a q-o-q basis and 29% on a y-o-y basis. Mumbai and Chennai together accounted for almost 65% of the new supply completed during the quarter, followed by Kolkata (16%).

This was the second quarter in the year in which Mumbai and Kolkata dominated supply additions across key cities. In line with the trend observed during the previous few quarters, non-IT developments continued to lead supply, with a share of more than 40% of new space completed, followed by IT buildings that accounted for a share of about 30%.

“India continues to be a key outsourcing location among global corporates and this is reflective in the steady growth in demand for prime office space. A recent trend that has been noted is the increase in demand for small to medium sized office space, not just in the metros, but also in smaller cities. Additionally, the increasing buzz around REITs in India (with the first listing likely to occur in the coming months), better alignment of developers with compliances under the RERA Act (which also covers the commercial segment), and trends in the global outsourcing industry are also likely to impact the commercial real estate sector in the coming quarters.” said Mr. Ram Chandnani, Managing Director – Transactions Services, CBRE South Asia Pvt. Ltd.

As per the report, rental growth has now moved to the relatively smaller markets of Chennai, Hyderabad and Pune; although amongst the relatively bigger markets Bangalore continues to experience rental growth. Decreasing space availability coupled with rising occupier interest led to a 1-10% q-o-q rental growth in most peripheral micro-markets of these cities across the IT, Non IT and SEZ segments. Sustained occupier interest also led to a quarterly rental growth of about 1-7% in the CBD’s of Bangalore, Pune and Chennai. This rental growth might sustain in supply-deficient prime locations in the coming quarters; although the rate of this growth might vary across cities.