India Office Property Market Overview

Gross office take-up in India amounted to 9.3 million sq ft (863,998 sq m) in Q1 2017. The market also recorded about 2.5 million sq ft (232,258 sq m) of precommitments signifying healthy demand. Although Q1 leasing volume represents a 25% decline q-o-q, volume is up by 8% y-o-y. The technology sector continued to generate demand for office space across cities, representing 51% of the total take-up in Q1 2017, followed by engineering and manufacturing on 11% and banking, financial services and insurance on 9%. The Bengaluru (Bangalore) market maintained its top position across nine cities despite low vacancy and recorded an overwhelming share of 37% of total absorption. Mumbai and Delhi NCR1 followed with shares of 18% and 17% respectively in total absorption.

Chennai, Pune, Hyderabad and Kolkata accounted for 11%, 9%, 6% and 2% respectively in the overall leasing volume.
We expect demand to remain firm in 2017, driven by technology and banking, financial services and insurance companies (BFSI). In Q1 2017, the Nikkei/IHS Markit Services’ Purchasing Managers’ Index rose to 51.5 in the month of March, its highest level since October 2016 indicating expansion. Oxford Economics also suggests that India’s composite PMI surged ahead, boosted by growth in output and new orders indicating a positive outlook. However, increased demand for high skilled work such as automation, Internet of Things (IoT), big data and analytics instead of process based work may lead to a short-term skill gap and disrupt expansion plan of technology companies in the next 2-3 years.

Supply of Grade A central office space will be replenished throughout the next 12 months but is unlikely to meet the demand in cities such as Bengaluru, Hyderabad, Chennai and Pune. Thus, we expect upward pressure on prime rents to continue and expect a 5% increase in coming quarters across these cities. The rental outlook remains broadly stable in cities such as Delhi NCR, Mumbai and Kolkata; however; we expect prime buildings to continue to command a premium over average market rents due to tenants’ appetite for Grade A developments.


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