Steady lease rentals, high absorption levels, low vacancy levels and global investor interest kept India’s commercial real estate sector buzzing during 2017. Unlike the fragmented residential market, the commercial sector fared much better. Backed by large investors, leading developers are steadily building Grade A office space in key cities. Here’s a look at how the commercial market fared in major cities:
Bengaluru: Known for its buoyant office market led by the IT/ITeS demand, the city registered moderate activity in the commercial space sector in 2017. This was primarily attributed to the dearth of ready office spaces that deterred the expansion plans of potential occupiers. With absorption pegged at 3.25 million sq. ft. for the first half of 2017, Bengaluru remains the most active office space market in India.
Pune: Even as co-working has emerged as a major trend in metros, it has witnessed considerable interest in Pune. Companies like Awfis and Smartworks that provide co-working space, have taken up space in markets like Baner, Nagar Road and Hadapsar.
Mumbai: 2017 witnessed the highest supply of new completions over the past several years. The new supply of office supply has increased to 7.6 mn sq. ft. during H1 2017, a jump of 54 percent year-on-year. This new infusion of office space has caused significant increase in vacancy rates by 22 percent across the Mumbai Metropolitan Region (MMR).
Chennai: The office market here has traditionally been driven by the IT/ITeS sector, but 2017 witnessed the emergence of the BFSI sector. The sector’s share of transactions increased substantially due to two large leases by Wells Fargo and HDFC Bank, amounting to over half of the space transacted by the sector.
Hyderabad: Low supply of quality office space has not been able to keep pace with the demand for quality office space in the city. This has pushed vacancy levels to a new low in most micro markets. Low vacancy continues to be a challenge for the Hyderabad office market in the coming quarters as Grade A supply is unable to match occupier demand.
After a stable 2017, real estate sector experts are looking forward to the first REIT listing as it will serve as a reference point for others to follow. This is crucial at a time when commercial real estate transactions are expected to pick up in the wake of an anticipated upswing in the economic activity.
Co-working spaces emerged as the hottest CRE trend of 2017 as they offer 20-25 percent cost savings as compared to working in conventional office spaces. The trend is more than a flash in the pan and has already begun to disrupt traditional office setups. As this concept gains popularity, the total space leased by co-working operators in the major cities could expand to 7–9 million sq. ft. by 2020.