Office Space Absorption Up 58% In 3Q 2014

Office Space Absorption Up 58% In 3Q 2014

Ramesh Nair, COO – Business & International Director, JLL India

The Indian monsoon months are synonymous with low activity in real estate, but this year witnessed considerable amount of activity in the office sector. Compared; with last year’s monsoon months of July, August and September (3Q CY 2013), this period in 2014 showed 58% growth in office space demand. A net absorption of 9.3 million sft (or 93 crore sft) of office space during 3Q CY 2014 is a good 1.58 times the same seen in 3Q 2013. This performance for a quarter’s net absorption was bettered only once in the year 2011.

Market activity, measured in gross leasing volume (GLV), was also high at 10.62 million sft, clearly indicating that there are better days ahead for commercial realty.

India’s new government led by Mr. Narendra Modi, who became Prime Minister with an absolute majority, has taken the right steps to infuse confidence and faith in the corporate world, which is now once again engaged in pursuing its growth plans.

JLL Chart

India’s Grade A office leasing market is dominated by US multi-national companies (accounting for more than 45% of leased space). These companies, along with Europe-based multinational companies accounting for 15% of share in office space leasing, are once again very bullish about growing their businesses in India after the new government took over. Indian companies, accounting for 30% of office space leasing, are slightly behind in executing their growth plans; however, we know that several of them are in various stages of their property hunt.

Bangalore and Delhi NCR led the revival with leasing almost 3 million sft and 2.5 million sft space respectively, spectacularly higher by 90% and 250% respectively that their performance the same time last year. Another city that rose on the office realty map was Kolkata, leasing more than half a million sft, from virtually no leasing same time last year. Mumbai, Chennai, Pune and Hyderabad maintained their quantum of leasing space with minor variation. The actual vibrancy on ground is felt even more, since the GLV is higher than the net absorption by 15-20%.

With a healthy space demand list on hand from various large companies, it is going to be hard for corporates to find the right assets at the right locations. Next year, we expect only 22 million sft of office space to be ready at the right locations against the demand forecast of just under 30 million sft in 2015.