Com­mer­cial real es­tate is clock­ing sus­tained growth

HT Estates - - FRONT PAGE - Ram Chand­nani feed­back@hin­dus­tan­ Ram Chand­nani is man­ag­ing di­rec­tor, ad­vi­sory and trans­ac­tion ser­vices, In­dia, at CBRE South Asia Pvt. Ltd.

With ris­ing lease rentals, high ab­sorp­tion lev­els and global oc­cu­pier in­ter­est, In­dia’s com­mer­cial of­fice mar­ket con­tin­ues to re­main a bright spot for the real es­tate sec­tor in the coun­try. The past year was a land­mark one for the seg­ment, with ab­sorp­tion of more than 43 mil­lion sq. ft of in­vest­ment grade of­fice space recorded in the coun­try; an an­nual growth of 9% year-on-year (y-o-y).

Bengaluru and Delhi NCR dom­i­nated of­fice leas­ing ac­tiv­ity, fol­lowed by Hy­der­abad and Mumbai. Hy­der­abad, in par­tic­u­lar, wit­nessed a steep rise in oc­cu­pier de­mand, with ab­sorp­tion more than dou­bling from 2015 to cross 6 mil­lion sq. ft in 2016.

The largest oc­cu­pier of of­fice space dur­ing the year continued to be the IT/ITeS sec­tor, along with de­mand from bank­ing, fi­nan­cial ser­vices and in­sur­ance (BFSI) and the engi­neer­ing and man­u­fac­tur­ing sec­tors. Space take- up com­prised of both ex­pan­sion and new leases, driven by both do­mes­tic and US-based oc­cu­piers, largely for their back-of­fice op­er­a­tions.

While de­mand wit­nessed a rise, sup­ply fell by about 10% in 2016, drop­ping to 35 mil­lion sq. ft from ap­prox­i­mately 39 mil­lion sq. ft in 2015. Rental trends dis­played aclear di­ver­gence in 2016, with rental growth ta­per­ing in core mi­cro-mar­kets of cities such as Delhi NCR and Mumbai, while be­gin­ning to rise in de­cen­tralised pe­riph­eral mi­cro-mar­kets of cities such as Bengaluru, Hy­der­abad, Chennai and Pune.

The first few months of 2017 are show­ing sus­tained ac­tiv­ity across the seg­ment in the top cities in In­dia with close to 8 mil­lion sq. ft of of­fice space take- up recorded be­tween Jan­uary and March. This mo­men­tum will be backed by com­pa­nies look­ing to ex­pand or con­sol­i­date op­er­a­tions. How­ever, we ex­pect leas­ing ac­tiv­ity to be marginally im­pacted in the medium to longterm, with space take-up likely to touch about 40 mil­lion sq. ft.

Dur­ing 2017, Delhi NCR, Mumbai and Ben ga lu ru will con­tinue their dom­i­nance in the over­all space take-up. How­ever, with lower costs and abun­dant avail­abil­ity of talent, we do ex­pect the share of smaller cities like Hy­der­abad, Chennai and Pune to be­come preferred lo­ca­tions by cor­po­rates to set up op­er­a­tions or ex­pand. While the IT/ITeS (mainly led by ITeS), BF SI and engi­neer­ing and man­u­fac­tur­ing sec­tors will re­main the main de­mand driv­ers, other sec­tors which­will re­main­ac­tive are con­sult­ing and re­search.

From a lo­ca­tion per­spec­tive, while the de­mand for qual­ity space in core lo­ca­tions will re­main­strong, dwin­dling avail­abil­ity and ris­ing cost-sen­si­tiv­ity of ten­ants is likely to re­sult in space take-up shift­ing to de­cen­tralised lo­ca­tions; thereby boost­ing take-up of pri­mary space. Oc­cu­piers are likely to fol­low this trend of “flight to value”, while also us­ing space uti­liza­tion strate­gies such as work­place op­ti­miza­tion and co-work­ing spa­ces.

With var­i­ous cor­po­rates look­ing to con­sol­i­date/ex­pand/re­lo­cate to pe­riph­eral or sub­ur­ban mar­kets, we ex­pect de­mand for large sized spa­ces to see an uptick in 2017. At the same time, the de­mand for small-medium sized spa­ces will con­tinue to re­main strong. Ad­di­tion­ally, cities like Mumbai and Bengaluru might wit­ness in­creased in­stances of pur­chase of space for en­duse, along with a ris­ing de­mand for space in prop­er­ties for sel­f­use (Built to Suit, or BTS).

In the re­cent past, we have wit­nessed the trend of au­to­ma­tion gain­ing trac­tion in the coun­try. Com­pa­nies are be­gin­ning to look at op­tions to re­place lowlevel and cer­tain mid-level jobs with tech­no­log­i­cal in­no­va­tions. Pro­cesses such as the In­ter­net of Things (IoT), in­creased us­age of ma­chines, ro­bot­ics and even data an­a­lyt­ics are likely to im­pact jobs in the “repet­i­tive” or “low-skilled” cat­e­gories. As an al­ter­na­tive, cor­po­rates (IT/ITeS in par­tic­u­lar) may see an in­creas­ing de­mand for em­ploy­ees with higher skills, specif­i­cally those who are able to work in an en­vi­ron­ment re­quir­ing min­i­mum hu­man in­ter­face.

Dur­ing the year, sup­ply across the seven cities is ex­pected to rise marginally to ap­prox­i­mately 38 mil­lion sq. ft. Mumbai and Delhi NCR are ex­pected to wit­ness the com­ple­tion of pent up sup­ply, re­sult­ing in the over­all abate­ment of com­ple­tion de­lays across cities. Dur­ing the year, the sup­ply pipe­line will be dom­i­nated by Hy­der­abad, fol­lowed by cities such as Ban­ga­lore and Mumbai. Most of the up­com­ing sup­ply will be in the pe­riph­eral/sub­ur­ban lo­ca­tions, which is likely to at­tract en­hanced en­quiries and strong pre-com­mit­ment ac­tiv­ity in the com­ing months.

As­the­of­fice mar­ket­con­tin­ues to de­velop, we ex­pect oc­cu­piers, to keep a strong check on space util­i­sa­tion ra­tios and in­no­va­tions in work­place strate­gies, while im­ple­ment­ing their ex­pan­sion plans. Ad­di­tion­ally, we ex­pect de­vel­oper fo­cus on BTS de­vel­op­ments to con­tinue in cities such as Bengaluru and Chennai. Pre-com­mit­ments in projects which are near­ing com­ple­tion are ex­pected to con­tinue in the com­ing months, par­tic­u­larly in the cities of Bengaluru, Hy­der­abad and Mumbai. As the mar­ket con­tin­ues to ma­ture, ris­ing sat­u­ra­tion, in­ad­e­quate in­fra­struc­ture and high rentals in cities such as Bengaluru are likely to be crit­i­cal fac­tors guiding oc­cu­pier strate­gies in 2017.


While de­mand wit­nessed a rise, sup­ply fell by about 10% in 2016, drop­ping to 35 mil­lion sq. ft from 39 mil­lion sq. ft in 2015

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