Wednesday, 3 June 2015

E-commerce, start-up scene driving up office space demand

Thanks to frenzied activity by e-commerce and tech start-ups, as well as the IT and ITeS companies’ capacity expansion plans, the country’s office space market seems to be regaining lost steam. With a major chunk of  total absorption of Grade A office space being notched up by the technology sector, in the January-March quarter, commercial realty market is getting ready to make the most of it.

Most real estate advisory firms have reported that India’s office sector has registered a notable rise in net absorption in the office leasing market.  Globally, a number of blue-chip tenants are moving to prime grade development in India as part of organic growth.

According to Cushman & Wakefield, there was a 20% year-on-year rise in the March quarter’s net absorption of Grade A office space with Bengaluru, Chennai, Kolkata, Mumbai and  Pune showing the most notable increases. The office market saw the strongest growth in Bengaluru with a whopping 500% increase in absorption rate.

Ravi Ahuja, executive, director, Cushman & Wakefield India, said Blackstone and other PE funds have been queuing up to buy assets. “This may bring about  a sea change. The trend serves as  a great level-playing up for both foreign and domestic investors,” he said. He added the country may surpass the 2006-2007 level of office space absorption, where 42-45 million sq-ft was consumed, in another few years.

“Last year we had 30-35 million sq-ft intake and I foresee this level going up to 35-36 million sq-ft this year. New age demand driver will be from e-commerce and start-ups which are scaling up big time, in Bengaluru and elsewhere in the country,” he said.

Cushman & Wakefield  has said in its latest research that total absorption of Grade A properties in office spaces was recorded at 8.5 million square feet in Q1. Among the total share in absorption, IT/ITes continued to remain the main driver with a share of 69% of total lease space. Bengaluru garnered 44% of the total share of absorption.

Real estate tracker Colliers International reported that office space absorption in the January-March quarter had risen by 2.8% from the last quarter. IT/ITeS drove most of this demand and e-commerce companies took up 52% of the total space absorbed.

According to Colliers, among major markets, Bengaluru market remains in the sweet spot in terms of supply-and-demand fundamentals. About 2 million sq ft of office space is set to witness completion next quarter.

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