As CRE activity picks up pace across major commercial hubs in India, pre-commitment levels in key office markets have been on the rise indicating persistent demand and occupiers’ interest in commercial spaces. In a pre-commitment deal, a developer leases the office building to corporate occupiers even as the building is under construction. In the current scenario of shortage of quality commercial space supply and increasing pressure on rents, many companies are pre-committing space for future needs and portfolio optimization.
Pre-commitments have risen in markets that demonstrate strong developer background with a track record of timely delivery along with quality office space under construction with well-planned amenities. Among key markets, Pune has seen the highest pre-commitment levels of 48 percent among Indian office markets. This means that almost half of the total supply expected in Pune during 2017 has been pre-committed to occupiers.
Other major commercial hubs have also attracted interest from potential occupiers with 39 percent of commercial space coming up in Bengaluru already pre-committed. Same is the case with Mumbai and Delhi-NCR that have registered pre-commitment levels of 33 and 22 percent respectively. The trend is likely to sustain over the next two years as Mumbai has recorded a pre-commitment level of about 17 percent for projects expected in 2019.
With experts predicting improved business outlook and rise in office rentals, more occupiers are locking their future space requirement in their chosen locations and projects. In Pune and Delhi pre-commitment activity is driven by IT/ITeS and BFSI sectors. In the nation’s financial capital, a whole gamut of occupiers from BFSI to IT, telecom and healthcare are in the race for pre-committing office space. The southern city of Hyderabad too is witnessing increased pre-commitment activity due to occupier interest from IT, telecom, consulting and healthcare sectors.
Going forward, more corporates are likely to opt for a pre-commitment deal as it gives them a chance to negotiate flexible lease terms and hedge future risk against any rental appreciation. According to experts, pre-commitment levels in CRE are likely to grow suggesting expectation of increased business activity in the mid and long-term.