Office space absorption declines 18% in H1, 2016: C&W

MUMBAI: Office space absorption contracted 18% to 14.5 million sq ft in India’s top eight markets in the first half of 2016 compared to that a year ago, according to a report by Cushman & Wakefield, which attributed the decline after six consecutive quarters of expansion to shortage of fresh supply.

The report said there was office space shortage in Bengaluru, Pune, Chennai and Delhi-National Capital Region, which led to a mixed trend in net absorption during the period.

Hyderabad, Delhi-NCR and Ahmedabad saw 10-55% year-on-year growth while Kolkata, Bengaluru, Chennai, Mumbai and Pune suffered 34-51% decline during the first six months of the year.

The percentage fall in office space absorption was also accentuated by higher levels of activity witnessed in Mumbai, Bengaluru, Chennai and Pune a year ago. However, experts said that this is likely to change in the second half given the optimism in the economy.

“The first half of the year has been a mixed bag for the key markets, with large volume locations like Bangalore and Mumbai seeing a drop in net absorption owing to slower take up of space by IT/ ITeS and BFSI (banking, financial services and insurance) sectors. This, however, is going to be only temporary as the second half looks promising,” said Anshul Jain, managing director-India at Cushman & Wakefield.

Jain said that a large number of companies have committed space foreseeing limited availability of quality stock in select markets, which will push up absorption in the second half of the year. “These pre-commitments are bound to steer net absorption, going forward. The year began with some outright transactions that will continue in some markets,” he said.

Of the key markets, Bengaluru registered a decline of 34% from a year ago to 4.5 million sq ft, despite a strong first three months. The decline can be attributed to lower-than-expected level of absorption of previously committed space. Delays in building completions led to restricted Grade A supply becoming operational, which contributed to a 24% drop in total supply in the first half of the year.

According to Jain, attractiveness of Bengaluru market remains strong, however, with Indian and global companies looking to expand their presence in the city. He said he expects the city to end the year with net absorption level of 9-10 million sq ft, with sectors such as IT-ITeS and e-commerce creating demand for office space. Mumbai witnessed 36% decline in net absorption to 1.3 million sq ft during the period due to the absence of large sized deals.

At the same time relocation and consolidation activities impacted the incremental space take-up. During the first half of the year, absorption was concentrated in the micro markets of Thane and Andheri-Kurla, characterised by uptake of small and mid- sized companies, the report said.

“The first half has been sluggish for Mumbai largely on account of low activities from demand drivers such as BFSI and IT/ ITeS that were more active in the last few years.

However, the office space market was kept ticking by small to mid-sized deals which is expected to continue and make their contributions on an overall basis,” Jain said. Bucking the trend, Delhi-NCR witnessed 39% jump in net absorption to 2.4 million sq ft during the period led by some large-sized deals and all the three zones of Gurgaon, Noida and New Delhi witnessed growth.

“The interesting development to note in the NCR market is the uptake of space in Noida due to its price advantage,” Jain said. Noida, he said, has to its advantage a robust infrastructure as well and can compete with Hyderabad and Pune.

Credits ET Realty

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