When does the Inactiveness in Office Space Absorption End in India?

With the decline of office space absorption in the top seven cities in India, the office space market saw a kind of sluggish period in the first three months with just a few transactions in office space leasing. It seems like the occupiers were busy finalizing their strategies for the year. According to the reports of a leading real estate firm, the first quarter of 2016 registered the absorption of about 5 million sq. ft. of office space during the period, which is actually a drop of 26% when compared to the same quarter of the previous year.

This is believed that most of the firms were busy making their strategies for the year, and this resulted in the drop of leasing activity. But it seems like the experts are not ready to give up with the Indian commercial real estate market, and they say that the first quarter of the year always witnesses a muted activity, but the overall sentiment among the corporate occupiers is still optimistic.

Delhi, Mumbai and Bengaluru Leads in Absorption

Delhi NCR accounted for the 31% of the overall office space absorption during the period, followed by Mumbai (contributing 23%) and Bengaluru (17%). Gurgaon seemed to have evoked a healthy interest among the corporates, while Navi Mumbai, Thane, and Vikhroli saw some prominent activity in Mumbai market. Similarly, Whitefield, Koramangala and Electronic City are the areas that witnessed major activities.

The first quarter also saw a few occupiers pre-committing to the space when they are still under construction, mainly in Mumbai and Gurgaon. Segment wise division shows us that the IT Sector has contributed about 47% to the total leasing activity, whereas SEZ contributed about 14% to the total transactions in the quarter.

Very Few Large-sized Transactions during the Period

On coming to the terms of size, the transactions that are less than 10,000 sq. ft. holds 44% of the share and the medium sized transactions ranging between 20,000 and 50,000 sq. ft. holds the share of about 19%. The large-sized transactions (greater than 100,000 sq. ft.) had a very less share of about 6%.

But on the supply side, the quarter witnessed the addition of about 7 million sq. ft. new space to the market. The supply chart was led by Pune, which contributed about 25% to the total supply released during the period. The locations that contributed to the city’s total supply were Kharadi, Hinjewadi, Hadapsar, Baner and FC Road.

Seeing the reports, the experts have foreseen that the next three quarters of the on-going year are sure to see a rise in leasing activity. As the corporate firms based out in other countries continue to expand their operations in India, the demand for office space is going to rise and hence the absorption. Also, the recent reforms like clearance to real estate investment trusts, relaxed foreign investment norms and other implementations are encouraging these firms and the prime micro-markets are more likely to remain in the focus. But with the developed infrastructure as well as availability of the cost-effective spaces, peripheral locations may also witness increased traction.