A dearth of quality office space at appropriate prices in key micro-markets in Bengaluru has led to many companies holding back on their leasing plans, leading to a sharp fall in net absorption, according to a report from property consultancy firm, Cushman & Wakefield.
The drop comes as companies moved to captive built to suit spaces or relocated to recently built spaces. Though overall business sentiments remained positive, companies held back their expansion plans in the short term as most office spaces which will come into supply in the next few months, are already pre-committed.
Bengaluru’s net absorption of office space fell 84% to 597,063 square feet, for the three month period between July and September, from 3.73 million square feet, a year earlier. Pre commitments for future supply also fell 76% to 568,000 from the year earlier period.
“Bangalore saw a decline in both net absorption and pre-commitments in Q3 2015 over 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,” according to the report.
The city, however, saw total office leasing activities of 2.7 million square feet during the same time, with net absorption expected to be more than 10 million square feet by the end of 2015.
“An increase in pre-commitments can be seen as sign of changing real estate cycle as far as the office space segment is concerned. With demand over taking 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 stabilizes and with companies looking at consolidation and expansion especially in the case of IT/ ITeS quality space is now the key factor governing the supply side dynamics,” Sanjay Dutt, executive managing director, Cushman & Wakefield India, said.
Overall net absorption in the top eight cities, which included Mumbai and Delhi-NCR, dropped 50% to 5.4 million square feet in the third quarter. Pre-commitments witnessed a sharp rise of 72% at 4.7 million square feet, led by Mumbai and Chennai.
Dutt explained that the tilt in the market towards future supply in the form of pre-commitment would be critical in deciding the next course of action for the developers, who have so far been offloading their existing stock.