Net office space absorption in 2017 to increase by 10%: Report

MUMBAI: Growth momentum in office absorption, witnessed over the last two years, is expected to continue in 2017 too. India’s top 8 property markets are likely to witness 10% surge in office space net absorption in 2017 to 32.5 million sq ft, the highest level seen over the last six years, said a Cushman & Wakefield report.

Strengthening business confidence, stabilizing global concerns and an optimistic economic outlook are likely to infuse confidence into occupiers, steering net office absorption across property markets. Net absorption will gather pace in last quarter of this year and is expected to close around 30 million sq ft driven at the end of 2016 and is expected to continue to gain momentum for the next four years. These property markets include Mumbai, Delhi-NCR, Bengaluru, Pune, Ahmedabad, Hyderabad and Chennai.

“The year 2016 saw stable demand similar to previous years and is expected to close at approximately 30 msf. Additionally, the gross absorption is expected to be at around 41million sq ft by the end of 2016 on account of consolidation and renewals further demonstrating confidence of the corporates on the economic growth of India,” Anshul Jain, Managing Director, India Cushman & Wakefield. “This was despite the external conditions such as uncertainty on account of Brexit vote and a change in the US president-elect. In a steadier environment, as expected in 2017 occupiers would gain greater confidence to take investment and expansion decisions.”

Jain expects net absorption cumulative annual growth to be at 3% until 2020, which is higher than the growth seen in the last five years. Hyderabad and Pune are markets to watch out for with supply and absorption levels expected to exceed that of the next four years.

Supply of around 45-46 million sq ft, a 26-28% increase is expected across the top cities in 2017, which would cater to the strengthening demand from sectors such as IT-BPM and BFSI. With better regulatory environment expected next year onwards, developers should be able to step up the pace of construction of new office spaces as demand from occupiers is expected to remain strong on the back of an encouraging business environment, the report added.

The year 2017 would also herald a period of office sector wherein the pecking order is expected to change. While Bengaluru will continue to be the premier market accounting for 32% share in 2017, Hyderabad with 18% share is expected to surpass Delhi-NCR’s 15% share for the first time ever to record the second-highest absorption levels.

The traction in demand in both Bengaluru and Hyderabad will be led by the IT-BPM sector. Both these cities have received notable pre-commitments over the last two years, which would be catered well by the higher supply expected in both these cities.

Bengaluru is likely to see 16% higher supply in 2017, while supply in Hyderabad is expected to increase by 36%. Delhi-NCR is likely to be placed third in terms of net absorption in 2017, with maximum demand seen in Gurgaon-Other submarket excluding DLF Cybercity, MG Road and Golf Course Road markets and Noida-Greater Noida.

Pune is likely to be close on the heels of Delhi-NCR, with SBD-East submarket including Kalyani Nagar, Kharadi, Mundhwa, Yerwada, Nagar Road, Viman Nagar, Hadapsar and Kondhwa reigning over the others in terms of net absorption.

Mumbai is expected to see a decline in cumulative demand in the forthcoming period of 2017 – 2020 estimated to be 12.7 million sq ft as compared to 2012- 2015. This will largely be due higher rental values in the city making it less attractive for the IT- BPM sector in the coming years. Majority of the demand will be concentrated in the sub-urban and peripheral locations of Thane – Belapur Road driven by the IT- BPM sector while corporate office preference would be largely concentrated in the SBD location of Bandra-Kurla Complex.

Credits ET Realty

 

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