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

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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.

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