The year 2015 marked a turnaround for India’s commercial real estate as steady economic growth and renewed corporate confidence, especially among ecommerce and IT companies, propelled transactions to the second-highest level in terms of area.
After over three years of weakness, total purchases and leases of office space in the top eight property markets rose to 35 million square feet during 2015. Net commercial real estate transactions by companies rose 17.1% from a year ago.
In 2011, a record 37 million sq. ft.of office space was taken up as rents eased after the global financial crisis. This time, however, it was the result of companies implementing growth plans, according to a report by property consultant Jones Lang LaSalle (JLL) India.
“During the year, office space demand was mainly driven by information technology IT enabled services, ecommerce, startups and large consulting firms,” said Anuj Puri, chairman at JLL India. “Players in many other sectors like fast moving consumer goods, banking, financial services and insurance, manufacturing, telecom and pharma did not come into the market – however, this should happen in 2016 and 2017. Next year will also see demand for built to-suit properties, especially from the larger IT occupiers.”
Commercial space transactions were distributed across new and old buildings in 2015, compared with largely newly completed buildings in 2011. There was a pick-up in large transactions this year, led by Flipkart, which leased 2 million sq. ft. of a custom-built office campus in Bengaluru, and Tata Consultancy Services, which rented over 2 million sq. ft. of built-to-suit space at Hiranandani Estate in Thane for 15 years.
Among purchases, pharma major Abbott IndiaBSE 1.38 % bought 5 lakh sq. ft. of space at Godrej Properties’ commercial project in Mumbai’s Bandra-Kurla Complex for about Rs 1,479 crore. A revival of momentum in commercial realty is an indicator of the economy’s health and augurs well for job creation. Deals by both investors and occupiers suggest that sentiment is improving for the office property market.
The pan-India vacancy level still stands at 16%, although the `realistic’ availability is actually 8-9% because total supply is not always relevant for corporate entities, he said. Many occupiers do not consider Grade-A buildings with multiple owners or those located in areas with inherent disadvantages and connectivity issues. Cities such as Pune, Bengaluru, Hyderabad and Chennai have a vacancy rate of 5-10% and would need fresh supply to meet growing demand, the report said.
Rental growth across Indian cities was steady, with Pune leading the pack with an 8.4% rise. This was followed by a 5.3% increase in average rentals in Bengaluru, 3% in the National Capital Region (NCR) and 1% in the Mumbai Metropolitan Region.