Office space supply down by 50% in first half of 2017: report
Supply of premium office space across eight major cities has fallen by 50% as compared to the same period last year, says a report by Cushman & Wakefield
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Mumbai: Supply of premium office space across eight major cities has fallen by nearly 50% in the first half of this year as compared to the same period last year, with all markets experiencing a slowdown, said property consultant firm Cushman & Wakefield.
This is one of the biggest decline in the last five years. In the first six months of this year, total supply stood at approximately 10 million sq.ft, as the per Cushman & Wakefield’s half yearly report on office market.
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The firm compiled eight cities - Mumbai, Bengaluru, Delhi-National Capital Region (NCR), Pune, Chennai, Kolkata , Hyderabad and Ahmedabad .
As per the report, while Mumbai saw a decline in supply by 72%, Bengaluru was down by 23% in the first half of this year as compared to the year-ago period. While Pune witnessed a fall of 45%, Delhi-National Capital Region (NCR) saw supply declining by 41%.
Shortage of grade A office space across eight cities - Mumbai, Bengaluru, Delhi-National Capital Region (NCR), Pune, Chennai, Kolkata , Hyderabad and Ahmedabad has also led to net absorption declining by around 11% in the first six months of this year, the report said.
During the period, a total of 12.5 million square feet (msf) were absorbed in these cities. Apart from Chennai where it saw a growth, all other cities registered a decline in net absorption due to a slow start in first quarter of this year.
“Supply has been gradually declining in the last five years. Besides the cyclical nature of the market, construction during the first three months also slowed down due to demonetization though it picked up in the second quarter,” said Siddhart Goel, senior director (research services) India, Cushman & Wakefield.
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He said uncertainty in the Information Technology (IT) sector - biggest occupier of office space in India - has also led to developers following a wait and watch mode in bringing supply to the market.
According to the report, lack of supply has been a critical reason for the slowdown in the uptake of space in the first half of this year. Shortage of supply is also likely to push rental values by around 5-10% across cities particularly in Bengaluru, Chennai, Hyderabad and Pune where vacancy in prime properties are less than 10%, Goel said. However rents in Hyderabad are expected to rise by as much a 25% through 2019 due to robust demand, the report added.
“Limited available of quality supply has encouraged occupiers to pre-commit office spaces resulting in a significant increase in about three times in such activity primarily driven by Information Technology- Business Process Manager (IT-BPM) and health care sectors in Hyderabad, Gurgaon and Bengaluru,” said Anshul Jain, managing director India, Cushman & Wakefield.
He said both supply and demand is likely to pick up in the second half of this year as “dust settles on the geo-political and economic upheavals across the world”.
“We are expected to see a healthy net absorption of close to 32-35 million sq.ft by the end of year. Further with a pre-commitments of close to 6 million sq.ft, we can expect the momentum of absorption to continue,” Jain said.
Developers also agreed that after an oversupply situation in 2012-2013, supply has tapered down gradually as most commercial real estate builders are cautious on starting new construction based on speculative demands.
“Today, we are seeing a situation where in most markets you don’t have supply except for few markets like Hyderabad where there is a lot of more supply coming in than what demand can match. I don’t see any new aggressive pouring of concrete in these micro markets in the next 12-18 months,” said Vinod Rohira, managing director (commercial real estate) K Raheja Corp, a Mumbai-based real estate firm.
According to him, post global financial crisis period, building commercial office has become a specialised play and few select real estate firms understand the changing product and market dynamics. The way commercial real estate is being built has changed as compared to five years ago, he said adding that demonetisation has not impacted much specially for organised firms.