Gurgaon dominates office leasing activity in Delhi-NCR in Q3 2017

CBRE South Asia has announced the findings of its latestIndia Office MarketView Report – Q3, 2017. While Gurgaon dominated leasingactivity during the review period, Noida recorded a quarterly increase inabsorption. Sustained occupier interest resulted in the micro-markets of NH8,Main Noida and DLF Cybercity driving more than half of the regions leasingactivity. Most of the absorption was in non-IT spaces in developments on NH-8in Gurgaon, Aerocity in Secondary Business District and Main Noida. On the supply side, quarterly supply addition increased butwas limited to Gurgaon. Most of the new supply entering the market was thanksto the receipt of long pending completion certificates which resulted indevelopment completions across several projects. IT/ITeS corporates dominatedleasing activity, followed by engineering and manufacturing firms. Leasingactivity continued to be driven by small to medium-sized transactions, however,the quarter also witnessed a large-sized deal (greater than 100,000 sq ft) withthe culmination of pre-commitment in a prime development on NH-8. DLF Cybercity (SEZ) witnessed a rental growth of about 3-4per cent QoQ. Rising vacancy levels in select developments resulted in amarginal rental dip of about 2-4 per cent QoQ in the Secondary BusinessDistrict of Nehru Place and Jasola in Delhi. Commenting on the findings of the report, Anshuman Magazine, Chairman-India &South-East Asia, CBRE, says, “India’s prime office market is evolving at arapid pace. Occupier strategies continue to focus on consolidation andexpansion as well as cost and greater flexibility of office space. The adventof co-working and shared office space formats is also influencing the market tosome extent. While demand for traditional office space will continue todominate the segment, it will have to make allowance for newer formats that areslowly gaining prominence and absorbing a part of the overall pie.” Ram Chandnani,Managing Director-Advisory & Transaction Services, CBRE South Asia, adds,“Despite availability of quality, ready to move in office space remainingconstrained, overall office leasing continued to be high during the quarter.The sustained interest from EMEA and US corporates highlights India’s continuedpreference as a destination for office space. Going forward, as occupierscontinue to future proof their portfolios and hedge against future rentalescalations, we can expect to witness a rise in pre-leasing of space acrossvarious cities. This shift in occupier strategy, focus on cost, and the growingprominence of alternative options like co-working spaces, could impact thedemand for office space in the short-term.”  Delhi MarketIndicators – Q3 2017 Micro-market Q-o-Q Highlights Demand q-o-q Supply q-o-q Rent q-o-q CBD Small and medium-sized transactions were noted with stability in rental growth   Gurgaon Leasing activity remained broadly steady, occupier focus continued to be on core micro-markets Noida Leasing activity reported in recently completed developments in Main Noida     Leasing activity for prime office space across key cities in India remained robust during Q3, 2017, crossing 10 million sq ft. As in earlier quarters, space take up was dominated by the IT and ITeS sector with 36 per cent share of overall space leased across key cities. It is noteworthy to highlight that the share of office leasing by e-commerce firms grew from 3 per cent earlier this year to 10 per cent in Q3, 2017. Other segments that drove the demand included the engineering and manufacturing segment (19 per cent), BFSI segment (10 per cent), and co-working and business centers (6 per cent) which is witnessing increased activity in recent months. With European corporates showing an increased interest in India’s office segment, the share of office leasing from these firms was recorded at 14 per cent in Q3, 2017, up from 9 per cent in Q2, 2017. During Q3, 2017, new supply addition witnessed a marginal, quarter-on-quarter dip to reach 7.2 million sq ft during Q3, 2017. Mumbai, Bangalore and Delhi NCR accounted for almost 80 per cent of the supply addition followed by Chennai and Hyderabad. Leasing activity was driven by small and medium-sized transactions (less than 50,000 sq ft) with small sized transactions (less than 10,000 sq ft) alone comprising 40 per cent of all transactions reported during the quarter. Other City Highlights – Q3, 2017 Mumbai Office space take-up was largely concentrated in PBD - Navi Mumbai, Thane; accounting for almost half of the city’s leasing activity Supply addition witnessed in PBD - Navi Mumbai and ABD BFSI companies continued to dominate space take-up, followed by IT/ITeS/BPO/KPO companies Rental values remained stable Bangalore Leasing activity fell marginally on a QoQ basis, largely concentrated in non-SEZ developments Office space demand was mainly driven by engineering and manufacturing, IT/ITeS and e-commerce firms which took up large sized spaces Supply addition remained subdued with only northern Bangalore witnessing supply addition during the quarte Co-working operators continued to be active Chennai Leasing activity grew on a QoQ basis; mainly concentrated in OMR zone I and Mount Poonamallee road (MPH road) Rental growth witnessed in OMR zone I (IT) and GST and MPH road (SEZ) Office space demand was mainly driven by e-commerce, IT/ITeS and BFSI firms Supply addition rose in the city on a QoQ basis Hyderabad Leasing activity fell on a QoQ basis IT/ ITeS corporates dominated leasing activity, followed by BFSI and research, consulting and analytics corporates Supply addition witnessed in IT and Extended IT Corridor Rental values continued to grow across IT and SEZ developments Pune Leasing activity increased on a quarterly basis Rental values rose on a quarterly basis across most micro-markets Office space demand was mainly driven by IT/ITeS firms while consulting, research and analytics and engineering and manufacturing firms were other prominent occupiers Co-working operators continued to be active in the city Kolkata Leasing activity was mainly concentrated in Salt lake V and Rajarhat, followed by developments in SBD Electronics corporates followed by media and research, consulting and analytics firms led demand Bulk of the demand was concentrated in IT developments Kochi Leasing activity increased on a quarterly basis; mainly concentrated in SBD Rental values remained stable The city witnessed negligible supply addition during the quarter Leasing activity in the city was mainly driven by the research, consulting and analytics sector, followed by IT/ITeS corporatesA review of the data for the first nine months of the year reveals that leasing activity continues to remain robust across the key cities. Key highlights for the segment for the January – September 2017 period are: Absorption touched 29 million sq ft; marginally lower compared to same period of 2016 Bangalore led leasing activity, followed by Hyderabad; signaling the growing prominence of the city as a preferred destination by corporates NCR records 2.4 million sq ft of new supply YoY in the first nine months New office space completion down 3 per cent YoY Office leasing activity is expected to sustain in the short-term, backed by companies looking to expand or consolidate their operations. Moving ahead, occupiers will continue to keep space utilisation and innovation in workplace strategies at the forefront of their expansion plans. Demand and use of co-working spaces is expected to rise with the concept being adopted by corporates who have fluid expansion or occupation plans. With supply continuing to remain constrained across most cities, the demand-supply gap will lead to rental growth across most peripheral and sub-urban micro-markets. Pre-commitments in projects which are nearing completion are also expected to continue in the coming months, due to the limited availability of ready-to-move-in space in the coming quarters. Read the full report here.