Track2Realty: Concerns over cost reduction and a cautious approach by occupiers had a negative impact on leasing activity across key markets in India. With major corporates continuing to review expansion plans and focusing on improving existing space utilization to control costs; key markets across India witnessed almost 26% decline in absorption of prime office space during 2012.
According to CBRE’s latest report on prime office space – India Office Market View Q4, 2012 – the total absorption of prime office space for 2012 was approximately 26 million sq ft as against 35 Million sq ft witnessed in 2011.
The last quarter of 2012 (October to December) witnessed absorption of approximately 7 million sq.ft. of office space as compared to about 6 million sq.ft. in the previous quarter. About 70% of the transaction activity was dominated by the NCR (National Capital Region), Mumbai and Bangalore.
Commenting on the findings of the report, Anshuman Magazine, Chairman and Managing Director of CBRE, South Asia Pvt. Ltd, said, “The decline in absorption across key cities is primarily due to the continuing global and domestic uncertainty in the economy which is a deterrent for corporates in their expansion plans. For the demand to revive the economic reforms in India need to be fast tracked besides global economy has to show some improvement in growth.”
Supply levels too witnessed a shift with bulk of the supply becoming operational only in Q4, 2012. The last quarter of the year witnessed almost 10 million sq.ft. of prime office space entering the market as against 5 million sq.ft. in Q3, 2012. This was mainly due to delays in project completions witnessed in the previous quarters.
Bulk of the new supply was limited to NCR, Mumbai and Bangalore, contributing about 75% to the entire space completed during the present quarter; about 60% of the supply comprised of IT and SEZ space.
The total office space supply that entered the market in 2012 was about 31 million sq.ft., compared to about 30 million sq ft in the previous year; this despite the fact that a large chunk of the office pipeline lined up for the year was delayed into 2013.
Rental values remained largely stable across most micro markets as occupier expansion faced cost pressures and consolidation continued to be the key theme. Rents were stable in suburban office markets such as Gurgaon, Noida, Outer Ring Road, Whitefield, Hitec City and Gachibowli, amongst others.
Most micro markets in Mumbai entered the downward cycle with the likes of Nariman Point, Bandra Kurla Complex and peripheral markets suffering from sluggish demand and increasing vacancy levels. It is anticipated that downward pressures will continue to persist on most markets in the country in a short to medium term.
The India Office Market View is a quarterly report which provides a summary of office rents across key cities in India. It includes average rental rates for the coming quarter as well as an outlook for the next quarter. The India Office Market View report also covers Grade A office space rentals across the cities of NCR, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata.
