The absorption of commercial real estate including outright purchases and leasing of office space in India’s top seven markets increased to 5.8 million square feet during the first quarter of 2016, up 8% from that a year ago, according to commercial data information and analytics firm Propstack.
This signals continuation of the strong revival seen last year due to renewed corporate confidence amid steady economic growth, which is an indicator of the economy’s health and augurs well for job creation.
The number of commercial real estate transactions by companies went up 23% during the quarter. The demand was led by companies in BFSI (banking, financial service and insurance), e-commerce and IT/ITeS sectors. Some of the significant deals concluded during the quarter include that of WNS in Mumbai, UBS at Pune, ADP in Hyderabad and Genpact in Gurgaon.
The office vacancy rates across the seven markets – Mumbai, Delhi-National Capital Region, Bengaluru, Pune, Chennai, Hyderabad and Kolkata – declined to 14% from 26% a year ago. Office space pickup was robust in the quarter ended March and vacancy levels also fell substantially, said Raja Seetharaman, director at Propstack.
“If the current momentum continues, 2016 could well be a record year for office space absorption in India. Commercial real estate is clearly reflecting the mood on business front and based on the pipeline for office space demand we are heading towards registering a strong year,” Seetharaman said.
The sector saw a turnaround in 2015 after witnessing a lull for over three years, recording about 35 million sq ft of office space purchases and leases in the country’s top eight property markets.
The figure was the highest since 2011, following sustained easing of rentals owing to global financial crisis. Most cities showed steady rental growth in the first quarter of this year, with the exception of Kolkata. While Pune led the pack in terms of rentals with an increase of 6.9%, Bengaluru was next with 5.7% while Delhi-NCR saw 2.8% growth and Chennai saw 2.6%. Mumbai saw a marginal increase of 1.2% while rentals in Hyderabad went up 1.4%.
Deals by both investors and occupiers suggest that sentiment is improving for the office property market.
Significantly, the 8% increase in absorption came without large deals of the sort seen last year. Transactions for office space of over 25,000 sq ft formed the major chunk of space absorption in Pune and Mumbai during the quarter. In Pune, such deals accounted for as much as 64% of the total absorption volume, while in Mumbai the share was 45%. In contrast, last year had seen a pickup in large transactions, 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.