BENGALURU: Commercial real estate activity across top cities in the country could be muted in the first half of 2017 after seeing a mixed trend in the year gone by, according to Cushman and Wakefield.
“Looking towards 2017, cautious expansion strategies by corporates, lower GDP growth due to demonetisation and uncertainty in the global economy due to BREXIT and US political scenario, the first half of the year is likely to see slower growth in demand for office space” said Anshul Jain, managing director, India, Cushman & Wakefield.
In its latest report, the real estate services firm said India saw a mixed trend in commercial real estate activity across top cities in 2016 because of delayed supply, fewer large transactions, subdued business sentiment and consolidation activity taken up by corporates.
According to the report, while Bengaluru, Hyderabad and Mumbai saw double-digit growth in office take up in 2016, net absorption in Delhi-NCR was about 4.3 million sq ft, a 9 per cent drop from the previous year, as companies continued to consolidate their offices in Gurgaon and Noida for greater productivity and cost efficiencies. While fall in net absorption of space was 47 per cent in Pune, it was 20 per cent in Chennai and a 22 per cent in Kolkata.
“There has been systematic growth in absorption despite new policy by the US president. We have pre-leased 100 per cent of our portfolio around nine months back, ” said Raj Menda, corporate chairman of RMZ Corp. The company recently acquired a 1.25-million sq ft business park operated by Essar’s realty arm Equinox Realty to expand its presence across the country. RMZ owns 20-million sq ft of office space in the country and plans to take it to 80-million sq ft by 2020.
Bucking the down trend, Bengaluru’s net absorption of office space climbed 28 per cent to 12.7 million sq ft, cementing the city’s No 1 position. Hyderabad took second spot for the first time since 2010 with net absorption of 6.3 million sq ft, a 14 per cent jump from a year ago. Demand in Mumbai also bounced back in 2016, with the city witnessing a 4 per cent increase in net absorption to 3.3 million sq ft.
“There has been good demand from occupiers and vacancy has been constantly falling,” said Mike Holland, CEO of Embassy Office Parks. The Embassy Group has a joint venture with a US-headquartered fund to buy office assets across top cities in the country. It has 24 million sq ft of leased and under-construction property across Pune, Chennai, Hyderabad and Bengaluru.
India’s commercial real estate is led by information technology/IT-enabled services, with North American companies accounting for over 80 per cent of the total IT/ITeS space pick-up. However, the share has been receding for some time now. Developers focusing on commercial spaces are hopeful that the scenario will continue to be in favour of India and software companies operating out of the country.
DLF has 5.1 million sq ft of office space under construction in Gurgaon and Chennai, and plans to expand in Hyderabad and Pune too. Amit Grover, national director-offices business at DLF, however said, “Future demand will be led by availability of high-quality talent and a city’s infrastructure. The year 2016 saw very little ready built office supply. Absorption of office space in 2017 will be stronger led by lot of pre-commitments.”
The report also mentioned that the total leasing activities in 2016 across the top eight cities amounted to 42.3 million sq ft, which was lower by 22 per cent over the previous year. The sector leading the leasing table was IT- BPM at 52 per cent of total space uptake in 2016.
According to Cushman and Wakefield, supply of about 36.6 million sq ft was infused during the year, with the last quarter accounting for 30 per cent of the completions as developers, especially in Bengaluru, received completion/occupancy certificates for their projects from local authorities. Developers scrambled to get their projects operational during the fourth quarter, encouraged by the strong demand pipeline from occupiers.
Credits ET Realty