Track2Realty: The total the net office space absorption across 8 cities is recorded at 5.9 million square feet (msf) which is 58% higher than same time last year, says the quarterly office market report (Jan–Mar 2014) by Cushman & Wakefield. Among the 8 cities, Ahmedabad and NCR recorded a 3 times increase in net absorption over the same period last year. However, there was a decline in net absorption of approximately 22% over last quarter (Q4, 2014) in all cities.
Overall vacancy remains stable at 18.9% at the end of Q1 2014. The total supply Q1 2014 reduced by 8% over the same period last year and was noted at 7.2 msf. Overall vacancy rate across the office markets reduced by 0.1 percentage point from Q4 2013 and was noted at 18.9% the end of Q1 2014.
The overall leasing activity was recorded at 8.5 msf, also recording an increase of 58% y-o-y indicating that the overall leasing activities has kept pace with relocations and/or consolidations building momentum as occupiers increase their operational efficiency from better quality spaces at lower costs.
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “The steady upward momentum in the first quarter absorption as compared to same time in other years is a positive sign. We can see that despite an overall economic condition of wait and watch, there has been an uptake of office space. Whilst some of the transactions are spillovers from the last quarter as deals could not be completed in time for the year-ending, there are also significant closures ahead of the general and some state elections next quarter.”
“We expect the next few weeks to be moderately slow in terms of uptake of space as businesses await the results of the new government. Even while occupiers remain conscious of their expansion programmes, we expect a new lease of momentum to start once there has been some concrete result from the general elections,” Sanjay added.
Ahmedabad
Ahmedabad witnessed overall net absorption of approximately 607,500 sf during the first quarter of 2014, which was more than double increase over the previous quarter and same quarter last year. The substantial increase was due to significant pre-commitments (400,000 sf) from previous quarters, which were absorbed during the first quarter 2014.
The net absorption was concentrated in the sub-markets of Gandhinagar (66%), Prahladnagar (25%) and Sarkhej-Gandhinagar Highway (10%) with transaction activity driven by Banking Financial Services and Insurance (BFSI) (49%), IT-ITeS (33%) and Pharmaceutical sectors (6%). Approximately 1.0 msf of space became operational during the quarter; a 6% increase compared to the same quarter last year. Supply during the quarter was concentrated in Gandhinagar, Prahladnagar and S.G. Highway with 80% of it in Grade A developments. The high levels of net absorption helped keep vacancies in check, which increased marginally to 36.2 % in Grade A developments due to the new supply. The rental values continued to remain stable across all major submarkets during the quarter.
Bengaluru
The leasing activity during the first quarter of 2014 was recorded at approximately 1.47 msf with net absorption noted at around 487,600 sf. The huge gap was due to the significant relocation and consolidation activities along with downsizing from select companies in order to optimize their real estate costs. However, the net absorption witnessed a y-o-y increase of around 56% owing to demand by IT-ITeS companies. In addition, pre-commitments by IT-ITeS companies during the quarter were noted at 700,000 sf in the peripheral submarket (Outer Ring Road (Sarjapur-Marathahalli).
The supply in the city has seen a gradual reduction with approximately 750,000 sf of space getting operational, which was 53% lower than same quarter last year. The overall vacancy witnessed a marginal rise of 0.1 percentage point quarter on quarter. Meanwhile, the rental levels across locations remained stable during the quarter, except for CBD/Off-CBD locations where rentals dipped by around 7% owing to rise in vacancy because of relocations and influx of new supply.
Chennai
During 1Q 2014, Chennai witnessed a substantial dip (70% y-o-y) in the net absorption levels that were noted at 44,700 sf. Though overall leasing activity of 865,900 sf was witnessed, the low net absorption level was due to the relocation of a number of occupiers in Rajiv Gandhi Salai and CBD locations, and downsizing of space requirements by a few companies in Suburban-Rajiv Gandhi Salai and Peripheral-GST submarkets. The quarter witnessed infusion of 176,000 sf of supply in Rajiv Gandhi Salai, South-west, CBD and Off CBD locations, which is 54% lower than same quarter last year.
Only 18% of this new supply belonged to the Grade A category and came up in South-west submarket. Overall vacancy levels that stood at 15.3% noted a marginal decline of 0.1 percentage point over the previous quarter. The rental values remained at par with the last quarter. However, weighted average rentals in Suburban-Rajiv Gandhi Salai and North West dipped by 2% on a q-o-q basis due to some properties in Grade B and Grade C being marketed at reduced rentals.
Hyderabad
Hyderabad witnessed a 2.5 times increase in net absorption over the same quarter last year, which was noted at 1.76 msf. Prior precommitments in the high quantum of Grade A supply that hit the markets led to a manifold increase in net absorption, which otherwise would have remained similar to last quarter. This continues to highlight the significance of Grade A office space in Hyderabad’s market, which accounted for 98% of the total supply of 2.16 msf during the first quarter of 2014.
The entire new supply was concentrated in suburban locations of Madhapur and Gachibowli. The IT-ITeS sector continued to be the key demand driver with other sectors like BFSI, consulting accounting for 29% of the total leasing. Pre-commitments by IT-ITeS occupiers in this quarter stood at 588,000 sf, concentrated in Grade A properties of Suburban Madhapur. The rentals continued to remain stable across the city. However, the demand supply has kept the vacancy under check, which was noted at 18.8% at the end of the quarter.
Kolkata
The total supply during Q1 2014 was noted at 72,500 sf, significant decline of about 90% from the same quarter last year. This was mainly owing to slow pace of construction of projects in Salt Lake and Rajarhat submarkets where a lot of inventory is already lying unoccupied. Net absorption was around 156,700 sf and fell by 38% on y-o-y basis owing to lack of big ticket leases due to subdued demand. The average size of transactions fell to around 4,400 sf as against 8,800 sf in the same quarter last year.
The IT-ITeS sector continued to witness the highest share (50%) in the total net absorption, followed by Banking Financial Services and Insurance (BFSI) and Consulting sectors together contributing around 20% share. The overall vacancy dropped marginally by about 0.4 percentage points on q-o-q basis. This was mainly on account of the comparatively lower supply infusion than the net absorption. The weighted average rents remained stable across micro markets owing to low leasing activity.
Mumbai
Mumbai witnessed an overall net absorption of approximately 750,000 sf during the first quarter of 2014 witnessing a year-on-year decline of 8%. This decline was due to lower expansions by companies and deferment in take-up until the upcoming state and general elections. The net absorption during the quarter was concentrated in the submarkets of Lower Parel (29%), Thane-Belapur Road (29%), Kanjurmarg (19%) and Vashi (10%). A few engineering sector companies in Andheri and Central Suburbs chose to relocate operations to locations in the central suburbs due to availability of quality space at attractive rentals. The transaction activity during the quarter was driven by IT-ITeS sector (48%), followed by Engineering (30%), Banking, Financial Services and Insurance (BFSI) (16%) and Pharmaceuticals (4%) sectors.
The supply during the first quarter was recorded at approximately 1.1 msf, which was 23% lower than same quarter last year. It was concentrated in the submarkets of Vashi (34%), Lower Parel (24%) and Kanjurmarg (24%). Overall vacancy levels increased by 0.14 percentage points and was noted at 16.9% at the end of Q1 2014. Lower demand resulted in weighted average rentals in the CBD declining by 3.7% over the quarter. However, they continued to remain stable at all other locations across the city.
National Capital Region (NCR)
The net absorption was recorded at 1.48 msf, significantly higher compared to the same quarter last year; driven by IT-ITeS occupiers followed by Consulting and Engineering. Majority of the net absorption was observed in the submarkets of Gurgaon followed by Delhi. Additionally, nearly 1.0 msf of space was pre-committed in the first quarter of 2014 by IT-ITeS and BFSI occupiers in Gurgaon.
Supply was also witnessed primarily in the peripheral areas of Gurgaon and emerging submarkets of Delhi (DIAL micromarket) adding approximately 1.72 msf of office space. This supply was 22% lower than the corresponding period last year. The weighted average rental values across submarkets weakened marginally, primarily due to increased availabilities in properties quoting lower rents. Overall vacancy rate at the end of the quarter was noted at 25.4%, a marginal decline of 0.2 percentage point.
Pune
Net absorption of 623,000 sf was noted during the quarter, which contributed to nearly 85% of the total leasing activity in the city in Q1 2014. The IT-ITeS sector’s expansion continued to dominate the leasing activity with a 53% share this quarter. A clear preference for quality spaces were visible as Grade A developments comprised 71% of the total net absorption during the quarter. The city witnessed a total supply of approximately 301,500 sf recording a decline of 53% y-o-y.
Entire new supply this quarter was contributed by commercial office spaces with no IT-centric developments becoming operational. Also, it is interesting to note that the CBD location witnessed Grade A supply of 49,500 sf after the span of a year, which was also the only Grade A supply witnessed during the quarter. Overall vacancy level declined by 0.7 percentage points owing to lower infusion of supply and relatively higher absorption levels.
