Net absorption declined 27% to 5.5 msf in Q1 2017 (Jan – Mar 2017) from 7.4 msf recorded in Q1 2016, in the top 8 Indian cities according to international property consultants Cushman & Wakefield. The decline was primarily due to delays in quality supply during the quarter. While occupiers maintain a healthy outlook towards expansion and up-take of office space, constraints related to delays in occupancy certificates (OCs), and deferred construction schedules by developers in most cities led to the significant drop in net absorption during Q1 2017.
Overall supply of office space during the quarter declined by 60%, to 4.7 msf in Q1 2017 from 11.6 msf in Q1 2016. Supply plummeted across all cities except in Chennai and Pune. These were also the only two cities that clocked an increase in net absorption during the quarter. The steepest fall was recorded in Hyderabad (75%) followed by Mumbai (74%) owing to approval delays.
|NET ABSORPTION (in msf)||SUPPLY (in msf)|
|Cities||Q1 2016||Q1 2017||% CHG||Q1 2016||Q1 2017||% CHG|
Source: Cushman & Wakefield Research
Anshul Jain, Managing Director, India, Cushman & Wakefield, “While activity levels in the first quarter has typically been sluggish, this year’s short-term blip stems from lack of quality available stock. Occupiers continue to be optimistic on the Indian market and are now waiting to occupy Grade A office space at the right locations that will give them a long-term leverage. This may also be instrumental in pushing up rental values for high quality office products in the short term. Demand from sectors such as BFSI, Consulting is likely to remain strong this year, but we do see some curtailment from the IT-BPM sector. Rampant adoption of automation, resulting in potentially lower hiring during the year could impact space take-up by the IT-BPM. Moreover, companies may be on a wait-and-watch mode owing to the protectionist policies that are likely to be introduced by the US. We foresee demand to pick up in the second half of the year with uncertainties, due to BREXIT and US political scenario, easing out.”
While the anticipated absorption for the year 2017 is expected to be stable at approximately 32 msf, most of the leasing activity is likely to take place in the latter half of the year. On the supply side, some portion of the forecasted supply of 45 msf during the year could be delayed to the next year owing to delays in completion.
BENGALURU: NET ABSORPTION DOWN 69% ON SUPPLY WOES
Net absorption in Bengaluru dropped almost 69% to 1.2 msf during the quarter, from Q1 2016 on the back of limited supply during the quarter. Even though occupiers were looking to expand and lease office space, inadequate supply of quality space led to tepid activity in Bengaluru. There were significant delays in receiving the occupancy certificates from the local municipal authority, which led to supply of merely 1.5 msf – only 20% of what was originally expected. Based on previous pre-commitments over the last few years, approximately 3 msf was expected to be absorbed during the quarter, of which only 1.4 msf was absorbed, due to the supply delays. The Outer Ring Road continued to be the premier submarket with more than half of the city’s supply seen here. It also witnessed 60% of the net absorption in the quarter, distantly followed by Suburban (22%) and Peripheral (21%) East.
PUNE: NET ABSORPTION DOUBLES TO 1.2 MSF
Net absorption in Pune more than doubled to 1.2 msf as incremental demand from occupiers (in expansionary mode) was met by adequate supply in the market over the last few quarters (~2 msf of supply addition in the past few quarters). Hence, the Pune market recouped during the Jan-March period, after two quarters of moderate net absorption by occupiers. The SBD East submarket continued to witness heightened activity and constituted nearly 70% of the net absorption during the quarter.
HYDERABAD: LACK OF SUPPLY LEADS TO 25% LOWER NET ABSORPTION
The city has witnessed a sharp 25% decline in net absorption to 0.9 msf, due to supply constraints across major markets. Subdued supply in most submarkets during the quarter resulted in IT-BPM’s leasing decline by 20% in Q1 2017 from Q1 2016. The total supply in Hyderabad declined by 75% to 0.5 msf in Q1 2017, with majority of the construction delays seen in the suburban Madhapur submarket. Interestingly, majority of the space scheduled for delivery in 2017 has already been pre-committed by the larger occupiers. Low vacancy level of 3.65% in Hyderabad’s most active market, Madhapur, forced occupiers to compromise with their locational preference and explore standalone properties in the other suburban market. Therefore, during the quarter, Gachibowli, which has greater availability of quality stock, witnessed the maximum activity, which is typically seen only in Madhapur. During the quarter, the submarket witnessed the highest net absorption among all submarkets at 0.5 msf.
CHENNAI: NET ABSORPTION UP 3-FOLD; NEGLIGIBLE SUPPLY SEEN IN Q1
After a relatively slow 2016, net absorption in Chennai rose more than three-fold to 0.8 msf, as the city witnessed a number of large deals (above 100,000 sf). The number of large deals rose more than two-fold during the quarter, from Q1 2016 levels. Moreover, majority of the leasing came in from the IT-BPM sector, more than doubling from that of the corresponding quarter last year. Almost the entire net absorption was seen in the Peripheral South submarket comprising of Thoraipakkam, Navalur and Sholinganallur, mainly contributed by IT SEZ transactions. While the net absorption activity picked up during the quarter, the total supply in Chennai was noted at a mere 0.1 msf during Q1 2017 as against no supply addition in Q1 2016. Supply that was expected during the quarter was deferred to the subsequent quarters, due to delay in approvals on account of political instability in the state.
DELHI NCR: RECORDS 64% FALL IN NEW SUPPLY; NET ABSORPTION DECLINES MARGINALLY
Delhi NCR witnessed a sharp 64% decline in supply y-o-y to 0.9 msf, owing to delayed completion of key projects in the city. Only 10% of the supply scheduled for completion became operational during the year, whilst the remaining have been delayed further. The supply infused during the quarter comprised of two IT projects in Noida and a commercial project in Gurgaon, making it the largest supply addition in the city for the last four quarters. In accordance with the decline in supply, net absorption slid 3% slid to 0.7 msf during Q1 2017. Submarkets of Gurgaon Others and Delhi International Airport witnessed maximum leasing activity during the quarter.
MUMBAI: CONSTRAINED SUPPLY DUE TO REGULATORY HURDLES
Net absorption in Mumbai declined by a meager 3% to 0.5 msf during the Q1 2017, from the corresponding period last year. However, net absorption was noted to be lower-than-expected due to the delayed completion of pre-committed buildings in the submarkets of Bandra-Kurla Complex and Thane-Belapur Road. Of the expected nearly 2 msf of Grade A supply, only 0.2 msf was completed during the quarter exacerbated by prolonged delays in obtaining approvals from the local regulatory authority. The Thane-Belapur Road submarket continued to attract occupiers’ interest, resulting into pre-commitments of nearly 100,000 sf recorded during the quarter.
KOLKATA: 20% DECLINE IN NET ABSORPTION; NO SUPPLY SEEN IN MARKET
Kolkata recorded a net absorption of 0.1 msf during Q1 2017, registering a 20% drop from the corresponding quarter last year. Although, occupier interest was subdued across markets, few big ticket transactions supplemented leasing activity during the quarter. The market’s restrained behavior was further reflected in the supply activity, which was nil during the quarter, as opposed to 0.5 msf of supply in Q1 2016.
AHMEDABAD: SEES 55% DROP IN NET ABSORPTION DURING Q1
Ahmedabad witnessed a 65% drop in net absorption during 2017 to 0.1 msf during first quarter. A sluggish first quarter, coupled with no large deals in the market, led to the decline in net absorption levels. Majority of the net absorption (42%) was recorded in the S.G. Highway submarket. The quarterly leasing activity was dominated by the banking, financial services, and insurance (BFSI) sector with a 37% share, followed by the IT-BPM sector with a 22% share.