Despite slowdown in the overall economy, the office market has continued to perform well in 2017. With about 10 million sq ft (0.9 million sq m) of office leasing in Q3, gross absorption totalled around 28.9 million sq ft (2.7 million sq m) over the first nine months. Although the number represents a marginal decline of about 1% from last year’s absorption during the same period, we expect leasing momentum to pick up in Q4 2017 and maintain Colliers International’s yearly forecast of more than 40 million sq ft (3.7 million sq m) for 2017.
“As expected, Bengaluru has remained the frontrunner in office leasing with a 31% share of overall demand followed by NCR on 25%, Hyderabad and Chennai on 12% each, Mumbai on 10%, Pune on 8% and Kolkata on 2%. With an 8% share of total leasing volume in Q3 2017, coworking operators are making their presence felt in the market. Overall, the commercial market will remain stable despite the economic slowdown and increasing concern about disruption from artificial intelligence, automation and stringent data security laws”, says Ritesh Sachdev, Senior Executive Director, Occupier Services, Colliers International India.
While the traditional demand drivers of the Indian office market, technology occupiers, represented 39% of total absorption, Banking, Financial Services and Insurance (BFSI) also formed the bulk of transactions and accounted for 17% of total absorption. On the supply side, ~90 million sq ft is under various stages of construction, which would likely to increase the current total stock by 16% in the next 3 years.
“Despite the temporary slowdown in the economy in the aftermath of several major government reforms executed in 2017 office market remained upbeat with increased investor activity, sustained leasing demand from technology companies and growing leasing interest from various industry occupiers like manufacturing, coworking, logistics and warehousing. We expect the commercial real estate market to remain on track with sustained demand from occupiers in short to medium term. Rents are likely to see an upward growth trajectory specially in Grade A buildings; average annual increase of 4-5% over the next three years likely in India across cities”, says Surabhi Arora, Senior Associate Director, Research, Colliers International India.
In Q3 2017, Bengaluru witnessed gross absorption of 3.0 million sq ft (0.27 million sq m) indicating a drop of 5% qo-q. However, the city recorded gross absorption of 10.0 million sq ft (0.9 million sq m) over the first nine months, representing a considerable increase of 16.5% from the same period last year.
With about 1.23 million sq ft (0.1 million sq m) Q3 gross absorption, Chennai has reached around 3.25 million sq ft (0.28 million sq m) office leasing so far this year, indicating sustained demand. Gross absorption recorded an increase of 7% compared to Q3 2016.
NCR: “We expect the commercial real estate market for NCR to remain on track with sustained demand from occupiers in short to medium term. Rental values are likely to remain stable across most micro-markets in Gurgaon, with expectation of a slight increase in CBD of Gurgaon. Rental values in Delhi will strengthen further due to consistent demand and limited Grade A stock/supply. Noida continues to be a tenant favorable market given high vacancy levels” added Sanjay Chatrath, Executive Director, NCR at Colliers International India
In Q3 2017, total gross leasing volume amounted to 0.26 million sq ft (0.02 million sq m) representing a significant increase of 30% in comparison to Q3 2016.
The market recorded about 0.6 million sq ft (0.05 million sq m) of gross absorption which was 20% up from the previous quarter.
With ~1.58 million sq ft (0.15 million sq m) of gross absorption in Q3, 2017, Gurugram was the most active office market in NCR. Gross absorption over the first nine months accounted to 3.3 million sq ft (0.3 million sq m) which is about 14% up from the same period in 2016. About 30% of the total lease volume was concentrated on Golf Course Road followed by Sohna Road 18%, Cyber City 14%, Golf Course Extension Road 13% and NH8 including Udyog Vihar 16%. MG Road and Institutional sectors represented only 1% and 4%, respectively.
Commercial leasing witnessed a drop of about 21% in Q3 2017 with about 1.24 million sq ft (0.12 million sq m) of gross absorption. The YTD absorption is recorded as 3.32 million sq ft (0.31 million sq m).
During Q3 2017, commercial market demand in Kolkata was in line with Q1 and Q2 absorption numbers, leading to a gross absorption of 0.2 million sq ft (18,150 sq m).
Gross office absorption amounted to only 1.0 million sq ft (0.1 million sq m) in Q3 2017, making it 4.0 million sq ft (0.4 million sq ft) YTD, which is similar to the YTD absorption in the same period last year.
In Q3 2017, leasing activity gained momentum with 0.82 million sq ft (77,100 sq m) of gross absorption, bringing the total for the first nine months of 2017 to 2.0 million sq ft (0.2 million sq m), a 24% YOY decline.