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India's office market register a rise of 9% on a y-o-y basis

Economic Times:  January, 2017

Bangalore: India’s office market witnessed an all time high with annual absorption of over 43 million sq. ft. in 2016, registering a growth of 9% on a y-o-y basis, said a CBRE India Office Market View Report – Q4 2016.

Anshuman Magazine, Chairman –India & South East Asia, CBRE said, “The commercial real estate market in India has been performing well for the past two years. This is evident in the record absorption levels witnessed in 2016. India continues to show positive movement, despite global uncertainties. Policy initiatives undertaken by the Government in the recent past is expected to bring transparency into the sector, which is a much needed step towards enhancing consumer and investor confidence.” 

Bangalore and NCR dominate leasing on an annual basis with 47% share. IT/ITeS firms continue to lead office transaction activity; account for about 50% of the transaction activity during the last quarter. “Small to medium sized transactions (under 50,000 sq. ft.) remained the preferred format of occupation. The share of domestic corporates in transaction activity grew from 41% in 2015 to 43% in 2016,” mentioned the report. 

“Commercial activity and occupier demand is expected to remain steady in the coming months, backed by corporates looking to expand/consolidate operations. Regulatory clearances in key locations are also likely to boost leasing activity in the coming quarters. Occupier enquiries for medium to large sized office spaces are expected to be closed in forthcoming quarters, adding to the transaction momentum.” said Ram Chandnani, Managing Director – Advisory & Transaction Services, CBRE South Asia Pvt. Ltd. 

On the supply front, a significant quantum of space is expected to be released in the decentralized locations of leading cities over the next few quarters. Most of this supply is concentrated in peripheral locations of leading cities, which is likely to attract enhanced enquiries and strong pre-commitment activity in the coming months. The Government’s policy initiatives (RERA and REIT), coupled with the impact of the recent demonetization drive is likely to result in the formalization and regulation of the sector. This in turn, is expected to boost transparency and investment flows into the commercial real estate sector, going forward. 

According to the report, supply addition during the year touched 35 million sq. ft. with India’s office stock reaching a milestone of over 0.5 billion sq. ft. (as of Q4 2016) - higher than several East Asian economies. Mumbai and Bangalore accounted for almost half of the annual supply addition . 

“Due to the limited availability of ready to move in Grade A supply, occupiers with medium and large size requirements will focus on pre-commitments in under construction/built-to-suit developments across key micro-markets in the leading cities in the country. Occupiers, while expanding their footprint, are likely to keep a strong check on city infrastructure and focus on space utilization ratios and innovation in workplace strategies,” said Chandnani. 

However, corporate occupiers are likely to remain cost sensitive, consider adoption of workplace strategies for efficient space-utilization.