The total absorption of grade A office space in India’s top eight cities was recorded at 5.4 million sq ft in the July-September quarter, a drop of 50% over the same period last year, according to property consultancy Cushman & Wakefield.
“Lack of quality ready space in key micro markets at a desirable price has led to many corporations holding out on their leasing plans, despite the overall sentiments for business remaining positive,” Cushman & Wakefield said in a report.
In the same quarter, however, pre-commitments for future supply saw a sharp rise of 75% on a y-o-y basis at 4.7 million sq ft, pushed greatly by pre-commitments in Mumbai.
Net absorption was the highest at 2.4 million sq ft in Hyderabad while Bengaluru saw a decline in both net absorption and pre-commitments in the September 2015 quarter over the same period last year with both seeing a decline of over 70%. Bengaluru witnessed higher relocations and consolidations in spite of healthy leasing, resulting in lower overall net absorption, the consultancy said.
“An increase in pre-commitments can be seen as sign of a 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,” said Sanjay Dutt, executive managing director, India, Cushman & Wakefield.
“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. Going forward, we are seeing strong supply pipeline this year as investors are taking a keen interest in commercial office assets. We expect demand for office space to remain robust as corporates continue to relocate, expand and adopt workplace transformation strategies,” said Dutt.
The tilt in the market towards future supply in the form of pre-commitment will be critical in deciding the next course of action for the developers, who have so far been most busy with offloading their existing stock, said Dutt.
“With expected supply for 2016 being as much as 62 msf, the rise in pre-commitments will be reassuring for developers. However, a matter of caution in this respect is the sharp decline in net – absorption, as this may lead to rise in vacancy in short to medium time owing continued non – occupancy of stock, even while future supply gets pre- committed,” he said.