NCR sees a slowdown in office space activity
Hyderabad records highest levels of office net absorption, Mumbai leads pre-commitments in the third quarter this year, reveals a report
Net absorption in the top eight cities recorded at 5.4 million square feet ( msf) saw a decline by over 50% in the third quarter of 2015 (July – September) over the same period last year . Lack of quality ready space in key micro markets at a desirable price has led to many corporations holding out on their leasing plans, despite the overall sentiments for business remaining positive, says a report on commercial office space market, global real estate consultants Cushman & Wakefield.
Both Pune and National Capital Region ( NCR) saw a slowdown in office space activities. In both cities, net absorption was the only source of office transactions with no pre-commitments for the quarter. DelhiNCR recorded net absorption of 1.1 msf while Pune witnessed net absorption of 667,000 per sq ft. What’s noteworthy is that both these locations have adequate ready spaces in quality office developments, to cater to the current demand. However, demand for office space itself seems to have taken a slow curve on account of changing dynamics of these markets.
In the same period, precommitments for future supply saw a sharp rise of 75% on y-o-y basis and was recorded at 4.7 msf, pushed greatly by pre- commitments in Mumbai. Hyderabad made an emphatic comeback with net absorption being recorded the highest at levels of 2.4 msf. Bengaluru saw a decline in both net absorption and pre-commitments in the third quarter of 2015 over the same period last year with both seeing a decline of over 70%. The city witnessed higher relocations and consolidations in spite of healthy leasing, resulting in lower overall net absorption.
“An increase in pre- commitments can be seen as a sign of changing real estate cycle as far as the office space segment is concerned. With demand overtaking supply in some key markets of Mumbai and Chennai, these markets have seen lower than previous activities on account of higher supply. As the economy stabilises and companies look at consolidation and expansion, especially in the case of IT/ ITeS, quality space is now the key factor governing the supply side dynamics. Going forward, we will be seeing a strong supply pipeline this year as investors are taking interest in commercial office assets. We expect demand for office space to remain robust as corporates continue to relocate, expand and adopt workplace transformation strategies,” says Sanjay Dutt, executive managing director, I ndia, Cushman & Wakefield.
“The t i l t i n t he market towards future supply in the form of pre- commitment will be critical in deciding the next course of action for developers, who have so far been busy with offloading their existing stock. With expected supply for 2016 being as much as 62 msf, the rise in pre-commitments will be reassuring for developers. However, one must be cautious of the sharp decline in net absorption, as this may lead to rise in vacancy in short to medium term owing to continued nonoccupancy of stock, even while future supply is pre-committed,” he adds.