CBRE South Asia Pvt. Ltd – India’s leading real estate consulting firm today announced the findings of its latest India Office Market View – Q2 2019. As per the findings of the CBRE report, leasing activity rose by almost 40% as compared to H1 2018, crossing 30 million sq. ft. during the first half of 2019; a historic high, indicative of the fact that leasing activity could surpass the previous peak of 2018.
Overall in H1 2019, Bangalore, Hyderabad, NCR and Mumbai accounted for about 80% leasing in the country. The share of SEZ spaces in overall space take-up rose from 26% to 29% during the same review period – mainly led by Bangalore, Hyderabad, and Pune.
Elaborating on the office leasing market, Anshuman Magazine, Chairman & CEO, South East Asia, Middle East and Africa – CBRE, said: “Increasingly, a larger number of global and domestic firms are positioning India as the destination for higher-skilled requirements, either for their global operations (through Global In-house Centers – GICs) or for tech-driven services, rather than low-end processes. As a result, we anticipate that the share of tech corporates in overall office space take-up would remain strong in 2019, a trend already visible in the first half of the year”.
ALMOST 29 MILLION SQ. FT. OF NEW OFFICE SUPPLY ADDED IN H1 2019; ADDITIONS LED BY HYDERABAD, FOLLOWED BY BANGALORE, MUMBAI, AND NCR
Supply addition rose by nearly 70% in H1 2019, with about 28.9 million sq. ft. of development completions reported, as compared to H1 2018. Four cities – Hyderabad, Bangalore, Chennai, and NCR – accounted for more than 80% of this supply addition. As compared to the first half of 2018, the share of SEZs in supply dipped from 32% to 24% during H1 2019. SEZ development completions during H1 2019 were mainly in Hyderabad and Noida, followed by Pune and Mumbai.
Ram Chandnani, Managing Director, Advisory & Transaction Services, India – CBRE South Asia Pvt. Ltd, said: “The office space take-up was majorly driven by tech corporates accounting for about half of the leasing activity during Q2 2019. This was followed by BFSI firms with a share of 11%, while flexible space operators came next with a share of 10%. Tech firms have been increasingly expanding and consolidating in almost every major city in the country. As a result, the sector’s share in leasing has grown from 32% in Q1 2019 to almost half in Q2 2019. Other sectors that drove office space leasing were e-commerce and engineering & manufacturing.”
SMALL- TO MEDIUM-SIZED TRANSACTIONS DOMINATED QUARTERLY SPACE TAKE-UP
As in the previous quarters, office space take-up was dominated by small- to medium-sized (<50,000 sq. ft.) transactions. Small-sized transactions (<10,000 sq. ft.) accounted for about 31% of the transaction activity in the quarter, while medium-sized transactions (ranging between 10,000 sq. ft. and 50,000 sq. ft.) held a 47% share. The share of large-sized deals (>100,000 sq. ft.) rose from 11% to 12% in the present quarter. Bangalore followed by Hyderabad dominated large-sized deal closures, while a few large deals were also reported in Hyderabad, NCR, Mumbai, Chennai, Pune, and Ahmedabad.
RISE IN PRE-LEASING ACTIVITY
Occupiers continued to future-proof their portfolios and hedge against future rental escalations by pre-leasing space across various cities. Pre-leasing activity almost doubled in the second quarter, crossing 6 million sq. ft. largely in Bangalore; followed by Hyderabad, Gurgaon, Chennai, and Pune. Tech firms and flexible space operators primarily drove quarterly pre-commitment activity.
Further, pre-leasing activity rose from more than 6 million sq. ft. in H1 2018 to cross 9 million sq. ft. in H1 2019. Tech firms and flexible space operators primarily drove this pre-commitment activity. Pre-commitments were also undertaken by BFSI, automobile, research, consulting & analytics and engineering & manufacturing firms.
A STRONG GROWTH IN OFFICE DEMAND AND SUSTAINED RENTAL MOMENTUM CONTINUES TO STOKE INVESTOR INTEREST
With the office market looking at another strong year in terms of space take-up, rental growth is expected to sustain across most micro-markets for the next few quarters. This continues to attract both institutional investors and developers, as more than USD 1.5 bn worth of capital was deployed in this sector in H1 2019, both in core built-up assets as well as land parcels.
City Highlights for Q2 2019
- Quarterly increase in space take-up
- Gurgaon dominated leasing activity
- Rents increased across several micro-markets in Gurgaon and Noida
- Bangalore continued to drive demand in the country
- Supply addition witnessed across all micro-markets
- A marginal increase in rental values in CBD, SBD, ORR, and PBD on a quarterly basis
- Leasing activity decreased marginally on a quarterly basis
- Supply addition in Navi Mumbai, Thane and Western Suburbs 2
- Rental values increased in BKC, Navi Mumbai, Eastern Suburbs and Western Suburbs 1 & 2
- Broadly stable leasing activity on a quarterly basis
- Supply addition in IT Corridor II
- Rental values increased in CBD, IT Corridor I and II and Extended IT Corridor
- Quarterly absorption increased on an annual basis
- Supply addition witnessed in CBD and Off CBD
- Rental growth reported in OMR Zone 1 and Mount Poonamallee Road on a quarterly basis
- Significant increase in leasing activity on a quarterly basis
- Supply addition witnessed in SBD East and SBD Kharadi
- Quarterly increase in rental values across most micro-markets
- Leasing activity dipped on a quarterly basis
- Negligible supply addition, rental stability observed
- Leasing activity was concentrated in SBD
- Stable rental values
- Quarterly decrease in space take-up
- Significant supply addition in SBD
- Rental values remained stable
In 2019, the impact of technology’s disruptive changes will be clearly visible, with stakeholders undertaking various measures to counteract them, marking a paradigm shift from ‘experimentation’ to ‘transformation’. Office leasing activity is expected to strengthen in the short term, backed by corporates seeking to expand or consolidate their operations. Besides American entities, India’s position as a preferred outsourcing destination would continue attracting corporates from other geographies such as EMEA and APAC.
Further, BFSI, engineering & manufacturing, research and consulting, and flexible space corporates are also likely to account for a larger share in annual leasing activity. Pharmaceuticals, telecom, and e-commerce are also likely to report higher occupier demand, driving demand for commercial space. Given the strong leasing activity already witnessed in H1 2019, by 2019 end the leasing quantum could potentially surpass the previous peak of 2018 by about 5-10% on an annual basis.