Bottom Line: Following a strong fourth quarter of 2015, the first quarter of 2016 was sluggish as most corporate space occupiers were still strategizing their real estate plans for the year.Â
Approximately 5 million sq. ft. of prime office space was absorbed during Q1, 2016 (Jan â€“ March) – a drop of approximately 26% year-on-year – according to CBREâ€™s India Office Market View â€“ Q1, 2016 report.
According to the report, corporate real estate space take-up during the quarter was led by Delhi National Capital Region (NCR) with a share of 31% of total transacted space in the leading cities, followed by Mumbai (23%) and Bangalore (17%).
Corporate occupier interest remained concentrated towards prominent micro-markets such as Gurgaon in Delhi NCR; Thane, Navi Mumbai, Vikhroli, Goregaon and Andheri in Mumbai; Koramangla, Whitefield and Electronic City in Bangalore; IT Corridor in Hyderabad; and Viman Nagar in Pune.
Occupiers were also seen pre-committing space in under-construction developments, primarily in Mumbai and Gurgaon, largely led by the lack of available space in investment-grade developments at prime locations.
Commenting on the findings of the report, Anshuman Magazine, CMD, CBRE South Asia said, â€śWhile the first quarter of the year traditionally witnesses muted transaction activity, the overall sentiment among Indiaâ€™s corporate space occupiers is optimistic. Besides, India continues to remain one of the global key outsourcing destinations which will improve the momentum going forward.â€ť
Almost 47% of the leasing activity in the quarter was concentrated in IT developments. Leading SEZ properties in Chennai, Bangalore, Gurgaon and Noida also witnessed considerable traction, accounting for about 14% of total transaction activity. Most SEZ transactions were the culmination of pre-commitments made by corporate occupiers in previous quarters for their office requirements.
In terms of supply, approximately 7 million sq. ft. of new office space was completed in the quarter with smaller cities such as Kolkata, Hyderabad and Pune accounting for about 68% of the total supply released during the quarter. Pune led project completions, generating about 25% of the total supply released during the quarter across leading cities. Commercial (non-IT) projects accounted for about half of the overall supply that came on-stream in Q1 2016.
â€śIndustry sectors such as IT/ITeS and banking / financial services are likely to remain the dominant demand drivers for office space in the country, with manufacturing / engineering, e-Commerce, and pharmaceuticals being the other active sectors that are likely to generate demand for corporate real estate space. Occupiers are also likely to keep a strong check on space utilization ratios and innovate on their workplace strategies. Demand for SEZ space and pre-commitments in projects nearing completion are expected to continue to improve in the coming months,â€ť said Ram Chandnani, Managing Director â€“ Transactions Services, CBRE South Asia.
Increased occupier demand in quality IT and IT SEZ projects in Malad/Goregaon in Mumbai; DLF Cybercity in Gurgaon; Noida Expressway in Noida; Guindy, Velacherry, Perungudi, Mount Ponnamalle Road and Taramani in Chennai; Aundh Baner, Viman Nagar, Hinjewadi and Kharadi in Pune; and IT and Extended IT Corridors in Hyderabad, resulted in a q-o-q rental appreciation of 2â€“10% across these micro-markets.