- Leasing activity increased by 12% on a quarterly basis to touch about 10.9 million sq. ft. dring Q3 2018
- Bangalore, Mumbai, Hyderabad and NCR accounted for almost 80% of the leasing activity
- Tech corporates (with a share of 48%) drove office space take-up in the country during Q3 2018. They were followed by engineering and manufacturing companies (14%) and agile / co-working / business center operators (11%)
- The first three quarters of the year recorded a take-up of more than 32 mn sq. ft., an increase of about 7% y-o-y
- More than 30% of the transaction activity reported in SEZ space during the quarter, with mid- to-large-sized deals being reported in Bangalore, Hyderabad, Pune and Gurgaon
New Delhi, October 11, 2018: CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm today announced the findings of its latest India Office MarketView – Q3 2018 report. Leasing activity improved by 12% on a quarterly basis to touch about 10.9 million sq. ft. during Q3 2018. Among key markets, Bangalore, Mumbai, Hyderabad and NCR accounted for about 80% of the leasing activity. Quarterly space take-up increased across all cities except NCR, Chennai and Hyderabad. Overall, the first three quarters of the year recorded a take-up of about 32 mn sq. ft., an increase of about 7% y-o-y. Even as several mid-to-large-sized deals were reported in Bangalore, Hyderabad, Pune and Gurgaon, more than 30% of the transaction activity was reported in SEZ space.
Anshuman Magazine, Chairman, India and South East Asia, CBRE said, “India’s economic growth continued on its upward trajectory and real estate services (along with financial and professional services) sector contributed to this economic surge as it grew from 5% in the previous quarter to 6.5% during the review period. Sectors such as BFSI, engineering & manufacturing, and agile/ co-working/business centers are likely to account for a larger share in leasing activity going forward”.
SMALL-TO-MEDIUM-SIZED TRANSACTIONS (LESS THAN 50,000 SQ. FT.) DOMINATED SPACE TAKE-UP
Similar to the previous quarters, office space take-up was dominated by small- and medium-sized transactions. Mid-sized transactions (ranging between 10,000 sq. ft. and 50,000 sq. ft.) accounted for about 45% of the transaction activity, while small-sized transactions (less than 10,000 sq. ft.) had a 42% share. The share of large-sized deals (greater than 100,000 sq. ft.) increased to 7% during the quarter.
Bangalore, followed by Hyderabad, dominated large-sized deal closures, while a few such deals were also reported in Mumbai, Pune and Chennai.
TECH REMAINS THE BIGGEST DEMAND DRIVER
Tech corporates (with a share of 48%) drove office space take-up in the country during Q3 2018. They were followed by engineering and manufacturing companies (14%) and co-working/business center operators (11%). These operators took up both primary and secondary spaces in primarily core locations. Other sectors such as BFSI (7%) also contributed to the increase in leasing activity. The agile workspace sector continued to witness a strong growth momentum, with global and Indian majors expanding their footprint in tier 1 and tier 2 cities. Co-working / business operators leased about 3.3 mn sq. ft. of space in the first three quarters of the year, almost doubling their take-up reported in the first three quarters of 2017.
Ram Chandnani, Managing Director, Advisory & Transaction Services, India, CBRE South Asia Pvt. Ltd. further added, “The trend of agile spaces is rising during a booming start-up era, even as corporates are drawing up fluid expansion and occupation plans. Occupiers are also expected to keep strong checks on space utilization ratios and innovation in workplace strategies while expanding their footprint and implementing their expansion plans. Also, SEZs are expected to account for a larger share of the upcoming supply over the next few quarters. Given the approaching sunset date, we anticipate an increase in demand for SEZ s space. “
RISE IN PRE-LEASING ACTIVITY
Pre-leasing activity rose in Q3 2018, largely in Bangalore and Hyderabad, driven primarily by tech and BFSI corporates. Overall, the country witnessed more than 12 mn sq. ft. of pre-commitment transactions in mostly under-construction assets in the first three quarters of the year.
On the other hand, supply addition in Q3 2018 dipped marginally by about 7% q-o-q to touch about 7.1 million sq. ft. Bangalore and Kochi accounted for 60% of the quarterly supply addition, followed by Mumbai and Hyderabad. Except Pune, Kolkata and Kochi, all cities reported a dip in development completions on a quarterly basis. Slippages were reported in cities such as NCR, Mumbai and Hyderabad.
City Highlights for Q3 2018:
Delhi-NCR
- Gurgaon dominated leasing activity
- Rents remained largely stable across all micro-markets
- Sustained occupier interest resulted in Noida Expressway, Extended Golf Course Road and DLF Cybercity accounting for nearly half of the region’s leasing activity. Most of the deals were closed in secondary spaces.
- Leasing activity continued to be driven by small-to-medium-sized transactions, although the quarter did witness the completion of one large-sized deal (greater than 100,000 sq. ft.) in Noida
Mumbai
- Quarterly increase in leasing activity
- Supply addition in Navi Mumbai and Western Suburbs 1
- Stable rental values across all micro-markets
- Space take-up was concentrated in Navi Mumbai and Western Suburbs 1 and 2. Primary space take-up dominated leasing activity, owing to the availability of space in recently completed investment-grade developments. Secondary space take-up was witnessed in Western Suburbs 1 Andheri and Eastern Suburbs Powai
- Co-working / business center operators continued to drive leasing activity across the city, followed by tech and BFSI firms.
- Small-to-medium-sized deals dominated leasing activity, with a few large-sized deals (greater than 100,000 sq. ft.) closed in Navi Mumbai
Bangalore
- Increase in leasing activity on a quarterly basis
- Supply addition in NBD, PBD and CBD
- Marginal increase in rental values in EBD, SBD and ORR on a quarterly basis
- Supply addition was witnessed in the form of medium-to-large-sized non-SEZ and SEZ developments in NBD Yelahanka, Thanisandra and Bellary Road; and PBD Whitefield, along with a small-sized non-SEZ development in CBD Off-Infantry Road.
- Quarterly SEZ absorption increased due to primary leasing in NBD and PBD.
Chennai
- Supply addition in OMR Zone I and Off-CBD; consisted of three small-sized IT developments in Off-CBD Guindy, and one small-sized IT development in OMR Zone I
- Nearly 1-3% quarterly increase in rental values in core areas
- Leasing activity concentrated in Mount Poonamallee Road (MPH road), Off-CBD and OMR Zone III
Hyderabad
- Supply addition witnessed in IT Corridor
- Rental value increase recorded in Extended IT Corridor
- The culmination of pre-commitments in completed developments primarily drove leasing activity
- Although small-to-medium-sized deals dominated leasing activity, the quarter also witnessed the closure of several large-sized deals
Pune
- Increase in leasing activity on a quarterly basis
- Supply addition witnessed in CBD and SBD
- Stable rental values across all micro-markets
- Space take-up remained concentrated across PBD Hinjewadi and CBD. Primary leasing continued to dominate space take-up, owing to availability of space in recently completed investment-grade developments
Kolkata
- Increase in leasing activity on a quarterly basis
- Supply addition observed in PBD
- Stable rental values across all micro-markets
- Leasing activity was primarily concentrated in PBD Salt Lake V and Rajarhat. Most of the closed transactions involved primary space take-up across small-to-medium-sized space formats
Kochi
- Leasing activity increased on a quarterly basis
- Supply addition witnessed in SBD
- Rental values remained stable
- Space take-up was primarily concentrated in SBD Kakkanad and Off-CBD Edapally. Leasing activity was mainly driven by the conclusion of small-to-medium-sized deals in newly completed developments
Ahmedabad
- Quarterly increase in leasing activity
- Rise in rental values in SBD on a quarterly basis
- Space take-up was primarily witnessed in CBD, followed by PBD. It was mainly concentrated in non-IT developments
Outlook
SEZs are expected to account for a larger share of the upcoming supply over the next few quarters. Given the approaching sunset date, CBRE anticipates an increase in demand for SEZ space. In addition, India’s first REIT listing (which is likely to take place soon) is expected to lead to positive investor sentiment. Overall, office leasing activity is expected to remain stable in the short term, backed by corporates looking to expand or consolidate their operations, the report said.
Supply completions mainly in peripheral/sub-urban micro-markets
A significant amount of space is expected to be released in the decentralized locations of leading cities over the next few quarters. In case of Bangalore and Delhi-NCR, upcoming developments in 2018 would consist of withheld supply, which was scheduled for completion in the previous quarters.
Rental growth expected to continue
With supply slippages recorded across most cities, a supply-demand gap is expected to appear over the next few quarters, which is likely to drive rental growth, the report said.
Disclaimer:
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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