Demand for Office Space

Demand for office space across top eight cities up 19% in Q1: Report

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Demand for office space across top eight cities up 19% in Q1: Report

Bengaluru, Hyderabad record strong growth while Pune shows 32% decline

Following a strong fourth quarter, the overall office demand across the top eight cities during the first quarter of 2016 increased by 19 per cent year-on-year to 11.7 million square feet (msf), according to a report by property consultants Cushman & Wakefield.
While the sluggish net absorption level is marked by a characteristic slow Q1 fraught by delayed decision-making by Indian companies, Bengaluru with 47 per cent growth and Hyderabad with 107 per cent growth bucked the trend, registering strong uptake of space.
Pre-commitments more than doubled compared to the same quarter last year and stood at 4.6 msf, representing 40 per cent of the total demand. A number of companies have committed space foreseeing limited availability of upcoming quality stock in select markets, C&W said in a statement.
Demand in Pune dropped by 32 per cent to 0.6 msf with no pre-commitments recorded during the quarter. The city witnessed an increase in supply to 0.9 msf in Q1, a 22 per cent increase compared to the same quarter last year.
Sumeet Bhatia, Managing Director, Pune, Cushman & Wakefield said, “After witnessing healthy absorption in the previous quarter, Pune witnessed a decline in net absorption in Q1 2016 due to delays in occupiers’ decisions with respect to expansion/ consolidation strategies. Interestingly, the share of absorption by companies in the BFSI and consulting sectors has been increasing over the last four quarters as global banks and financial institutions continue to expand their captive centres in the city. While in Q1 2015 the BFSI and consulting sector together constituted a mere 9 per cent in quarterly leasing, the share of both these sectors increased to almost half (48 per cent) of total Grade A leasing in Q1 2016.”
Bengaluru and Hyderabad accounted for approximately 72 per cent of the total demand on the back of strong activity from companies in the IT-ITeS sector, which expanded their footprint.
Bengaluru witnessed demand of 6.1 msf, a 47 per cent increase from the year-ago quarter. The city has seen steady pre-commitment levels over the last couple of years with the first quarter witnessing 2.8 msf, a three-fold increase compared to the same quarter last year.
Despite a 66 per cent increase in supply during Q1 2016 in comparison to the same period of last year, the city’s vacancy level was noted at 10.5 per cent, the lowest in 13 quarters, due to high leasing activity. This signals that it has remained the dominant market, especially for companies in the technology space. Availability of quality space, competitive rentals, availability of talent and political stability are major reasons contributing to Bengaluru’s position as a leader in the commercial office space.
The IT-ITeS sector continues to fuel the Hyderabad market, leading to a 107 per cent increase in demand to 2.3 msf in Q1 2016 over Q1 2015 levels. The city saw heightened net absorption of 1.2 msf and equivalent pre-commitments during the quarter owing to greater business confidence. After four quarters of staggered supply levels, supply too increased by 49 per cent to 1.4 msf during Q1 2016.
“Demand looks promising going forward with increasing business confidence. The first quarter began by recording a high pre-commitment level ensuring healthy momentum in the next few quarters, especially in the southern cities. Moreover, the year 2016 began with some outright purchases in top cities. With the government streamlining the taxation structure of REITS, the market might witness higher investment activities towards the latter end of the year,” Ritesh Sachdev, Managing Director, Tenant Advisory Group, India, Cushman & Wakefield, added.
The supply across the eight cities witnessed a 41 per cent increase to 11.1 msf, the majority in Bengaluru, followed by Delhi-NCR and Hyderabad. Despite high infusion of supply and comparatively lower absorption, the overall vacancy across eight cities was seen at 17.12 per cent at the end of Q1 2016, the lowest vacancy level in 10 quarters.
Source :- The Hindu Business Line

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