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Bengaluru, Chennai and Pune lead Indian office market: Key takeaways

Approximately 8 million sq. ft. of office space was leased across eight major cities during the quarter.

Bengaluru, Chennai and Pune lead Indian office market: Key takeaways

Approximately 8 million sq. ft. of office space was leased across eight major cities during the quarter. Bengaluru, Chennai and Pune topped the chart in the total office market absorption.

Colliers International, an international property consultant has released its office report ‘Office Property Market Overview, July 2014’ today. The report decodes the overall office market sentiment in eight major cities namely Mumbai, Delhi, Gurgaon, NOIDA, Chennai, Bengaluru, Kolkata and Pune in India during 2Q 2014.

KEY TAKEAWAYS FROM THE REPORT:

Approximately 8 million sq. ft. of office space was leased across eight major cities during the quarter.

Office property market has witnessed a new wave of leasing activity cities like Bangalore and Pune.

Robust demand for Grade A office space continued this quarter and IT/ITeS remained the primary demand generator.

For Delhi NCR the second quarter of the FY-2014 was a dampener due to the union elections.

Mumbai saw a major investment transaction where Blackstone acquired 247 Park, a leased commercial asset,

OFFICE MARKET OVERVIEW

Robust demand for Grade A office space with improved occupier sentiment took Bengaluru and Pune to the forefront, as both the cities witnessed a total of 5.83 million sq. ft. of office lease transactions this quarter. While Bengaluru market saw 4.22 million sq. ft. of office lease transactions, which represents a 12% Q-o-Q increase, on the other hand, the office absorption increased 34% Q-o-Q in Pune, which witnessed a total absorption of 1.12 million sq. ft. In these two cities, occupiers from the IT/ITeS sector were the primary contributor of this demand with 90% and 45% of the office space absorption was by companies in the IT/ITeS sector in Bengaluru and Pune respectively.

A marginal increase in office leasing has been noticed in the Mumbai and Chennai market with demand for Grade A office space. While in Mumbai, the absorption levels increased by 16% Q-o-Q to 0.49 million sq. ft. compared to the last quarter?s 0.42 million sq. ft. Chennai witnessed a marginal 8% increase in absorption over the previous quarter. Approximately 0.61 million sq. ft. was leased during the surveyed period in the city. BFSI and consulting firms remain the prime occupiers in Mumbai with about 30% of the total absorption. However, in Chennai, the IT/ITeS sector with about 70% of the total absorption remained the primary occupier, followed by the BFSI, advisory, manufacturing, real estate and entertainment industries.

.Delhi and Kolkata micro markets have remained sluggish with about 0.25 million sq. ft. of office space was leased in the Delhi and 0.15 million sq. ft. in Kolkata. A steep decline in absorption was witnessed in the NCR during the quarter with only 0.53 million sq. ft. of office space absorbed in Gurgaon against last quarter?s 1.67 million sq. ft., whereas in Noida 0.12 million sq. ft. of office space was leased.

Outlook:

Joe Verghese, Managing Director, Colliers International says, the office sector is due for a stronger quarter following the positive business sentiments which will likely to pave way for more firms to embark on expansion plans. Although absorption rates are expected to strengthen further and new development is picking up, the office sector will not face the cyclical headwind of overbuilding. Demand supply equilibrium will keep rents stable in most of the markets. We are observing stronger demand trends for higher quality office space despite cost conscious approach taken by corporates. To save on rents occupiers will prefer quality office space in peripheral areas due to lower rental values.?

The office property market is expected to continue to strengthen for the remainder of 2014. This strong demand will continue in the cities like Pune and Bengaluru for the short to medium term, as evidenced by the large volume of enquiries and RFPs in the currently in the market. The restoration of business confidence is expected to gain steam, on the back of the positive business outlook. Adequate supply in the pipeline in all the markets will ensure steady rentals across the cities in the medium term, while vacancy may fall marginally in cities like Bangalore and Pune.

NOTE: Press Release

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First published on: 22-07-2014 at 13:22 IST
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