For the commercial real estate sector, the first quarter of 2015 calendar year has been a good one with office space absorption reaching 8.5 million sq ft in the top eight major metro cities of India, according to a study by property advisory firm Colliers International.
Office leasing was led by Bengaluru with total leasing of 3.82 million sq ft, including 1.74 million sq ft of pre-commitments. The Delhi-NCR region that includes Gurgaon and Noida saw leasing of 1.48 million sq ft while Mumbai stood at 1.33 million sq ft, Pune at 0.89 million sq ft, Chennai at 0.81 million sq ft and Kolkata at 0.22 million sq ft.
Office space absorption increased by 2.8% over the previous quarter, the report said. IT/ITeS and BFSI were the primary sectors driving this demand and within IT/ITeS, e-commerce companies took up 52% of the total space absorbed in the quarter.
Select micro markets in cities like Bengaluru and Mumbai witnessed marginal increase in rental values in the range of 1- 3% QoQ.
"Among all the major markets, Bengaluru office market remains in the "sweet spot" in terms of supply-and-demand fundamentals. About 2 million sq ft of office space is expected to witness completion next quarter, out of which about 0.2 million sq ft is already committed. This steady increase in development activity and greater domestic and foreign investor interest in office market should result in additional occupancy and rent growth," said Vikas Kalia, national director, office services at Colliers International.
Kalia said that many requests for proposal have been floated in Gurgaon and he anticipates an increase in office absorption in the near future.
Institutional sectors in Gurgaon such as Sector 32 and 44 will continue to remain preferred office destinations due to location advantages and competitive rentals. Also micro-markets such as NH-8, DLF Cyber City, Golf Course Road and Sohna Road have witnessed 5-10% appreciation in rental values due to high occupancy rates in properties in these micro-markets, and the fact that these are currently the preferred locations for occupiers.
"Absorption has increased, especially in Special Economic Zones, as a number of large format deals have been concluded in trailing 12 months and many are in the pipeline and expected to be concluded in the coming quarters," said Kalia.
The report pointed that in response to this new tenant demand, the strongest markets (namely Bengaluru and Gurgaon) will witness development of new stock. "However, developer sentiment towards speculative construction of office buildings is expected to remain cautious, and this in turn will limit the risk of further overbuilding," it said.