A Major Contributor to Future Growth:How Office Markets in Indian Commercial Real Estate are Witnessing Increased Absorption in Key Cities

By: AIPL Marketing
On: December 19th, 2018

In 2018, a strong proliferation was seen in commercial office spaces in the Indian real estate market with over 33 million sq. ft. absorbed across DELHI-NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune, and Kolkata, which are the top seven property markets in the country, resulting in 16% of on-year growth. It is forecasted that in 2019, these seven markets will record an all-time high in the transaction of commercial office spaces, with the a net absorption of 37 million sq. ft., which is similar to what was achieved in 2011, according to the latest report issued by JLL India.

These markets are further expected to witness a strong momentum with a net absorption of 76 million sq. ft. during the next two years. Based on the data of the current launch of new projects in several markets, a supply of around 126 million sq. ft. is expected over the next three years. Ramesh Nair, CEO & Country Head, JLL India, said in a statement that India’s position is improving considerably in the ease of doing business, and with the a growth rate of 8.2% in GDP in the 2nd (April-June) Quarter of the current fiscal year, the economy of our country is moving in an upward direction. This will further have a positive impact on the real estate sector, especially in the demand for commercial office spaces.

Nair further believes that it is going to be a very beneficial step for the developers to invest more in commercial office space to obtain the benefits that this sector has to offer. Net absorption for commercial spaces has grown by 18% year on year, which is 23.4 million sq. ft. during the first nine months, ending in Sep 2018. It is because of the demand for good quality, grade- A office spaces, strong economic fundamentals, institutional investments in the commercial office assets, along with the co-working office trend catching up in key markets, which are considered to be some of the key reasons,that this double digit growth has been achieved.

Colliers International India stated in the report that due to the advent of technology & automation,commercial office spaces, which have seen a robust and consistent growth in the last 4 to 5 years, are undergoing a major shift, which clearly reflects in the volume of office space transactions for the several key property markets in India. The report further suggests that Mumbai &Delhi NCR are contributing 70% of the absorption in the country with 4.2 million and 4 million sq. ft. respectively, including a demand for commercial shops for sale in Gurgaon and other cities; however, in absolute volume terms,Bengaluru has recorded the highest absorption for office spaces at 7.9 million sq. ft. in the first nine months of 2018.

Senior Executive Director, Occupier Services at Colliers International India, Ritesh Sachdev, said in a statement that IT-ITES, Banking & Insurance, Manufacturing & Consultancy services are the key sectors that drive the demand for office spaces in these cities. Co-working space providers & Ee-commerce are also the important players contributing to this demand of office spaces. Chennai witnessed a 92% increase in office absorption at 2.3 million sq. ft., followed by Pune with 50% on year growth at 2.1 million sq. ft. in terms of percentage growth. As per the data, Hyderabad and Kolkata witnessed the absorption of 2.2 million sq. ft. and 0.7 million sq. ft. respectively. The past decade has witnessed a structural shift in the commercial office sector on the back of technology revolution, boosted further because of the e-commerce boom in the past 3-years, which further has contributed in increasing supply & demand dynamics. The demand for office space has also increased by the Cco -working service providers, which in the past nine months ending 30th Sep, has further contributed to over 10% of total office space taken -up in these 7 markets.

According to latest report from the International Property Consultant, Cushman & Wakefield, in addition to all this, the demand and supply in the commercial office sector has also thrived due to a lot of traction from fintech and proptech companies as well as data center providers. This impact is visible in the increasing-supply for quality office space and commercial property in Amritsar and other Tier II cities as well. On the rentals front, the a stable and realistic growth has been seen in the Mumbai and Delhi-NCR markets. Rentals in Bengaluru, Pune, Chennai, and Hyderabad have also crossed the peak levels they had attained in the third quarter of 2008, just before the beginning of the economic slowdown. The uUnoccupied grade-A office spaces in cities like Bengaluru, Hyderabad, Pune, and Chennai are all in single digits. This demand, which was initially created by IT and IT-SEZ occupiers, has now seen the a rise from the non IT Players as well, that too from the cities which have been traditional
IT hubs.

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