Net Absorption Remains Steady at 34 MSF

                NET ABSORPTION REMAINS STEADY AT 34 MSF: BENGALURU AND HYDERABAD TOP OFFICE MARKETS

India, February 8, 2017– Strengthening business confidences resulted in net absorption of office space across the top eight cities to at 34 million square feet (msf) during 2016 according to international property consultants Cushman & Wakefield. Of the total uptake of office space, nearly 40% of the total net absorption took place in the last quarter of 2016.Bengaluru recorded the highest net absorption during the year, with Hyderabad surpassing Pune to emerge as the second-largest market in 2016. Delhi followed the two southern cities in terms of net absorption with activity witnessed in Gurgaon and Noida.

Source: Cushman & Wakefield Research

“The demand for office space, though similar to that seen in 2015 was better than market expectations, especially in the second half of the year. Despite many changes globally, that could change the course of business, India remained one of the most optimistic markets in the recent times. We expect this positive outlook to continue into 2017. In the new near, majority of the activities will be led by consolidation and expansion of businesses, we feel that it would be ideal to maintain the momentum of the market. Bengaluru has once again been the best performing market, and we expect the traction to continue. Investors and occupiers are keenly watching the Hyderabad market, where we see continued demand next year. Looking towards 2017, cautious expansion strategies by corporates, lower GDP growth due to demonetization and uncertainty in the global economy due to BREXIT and  US political scenario, the first half of the year is likely to see slower growth in demand for office space ” Anshul Jain, Managing Director, India Cushman & Wakefield said.

The total leasing activities that took place in 2016 across the top eight cities amounted to 42.3 msf which was lower by 22% over the previous year.  The top sector leading the total leasing table were IT- BPM at 52% of total space uptake in 2016. Bengaluru remained the preferred IT-BPM destination constituting 37% of the total leasing activity followed by Hyderabad at 26%. These were followed by Chennai and Delhi at 11% and 10% share respectively. Consulting services took up approximately 6% of the total office space leased while BFSI amounted for abnout 4% of the total leasing in 2016. Pharma & Healthcare constituted about 3.2% while E- commerce formed about 1.5% of the volume of office space leasing transactions in 2016. While all major sectors saw a slowdown in the total volume of transaction, Energy & Chemicals was one the only sector that recorded a rise in total leasing activities at approximately 53% growth y- o- y over the previous year.

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SECTOR WISE BREAK UP OF GROSS ABSORPTION 2016

Source: Cushman & Wakefield Research

Total supply of approximately 36.6 msf was infused during the year, with the last quarter accounting for 30% of the completions as developers, especially in Bengaluru received completion/occupancy certificates for their projects from local authorities. Developers scrambled to get their projects operational during the fourth quarter encouraged by thestrong demand pipeline from occupiers.

NET ABSORPTION AT 12.4 MSF IN BENGALURU HIGHEST IN 9 YRS

Bengaluru’s net absorption rose 28% to 12.7 msf during 2017, cementing the city’s numerouno position. The new highin 2016 is roughly 5% higher than the last net absorption peak that Bengaluru witnessed in 2011. Large part of the activity stemmed from the last quarter of the year when projects spanning a whopping 7msf came into supply, with majority of them previously pre-committed to by occupiers. The spurt in supply in the last quarter of the year was driven by a substantial number of projects receiving their occupancy certificates. The Outer Ring Road submarket accounted for 54% of the net absorption during the year, distantly followed by the Peripheral East submarket comprising of Whitefield.

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HYDERABAD ROSE TO SECOND SPOT AFTER 2010; NET ABSORPTION UP 14% TO 6.3 MSF

Hyderabad’s prominence as a market catapulted this year to the second position for the first time since 2010. Net absorptionrose 14% to 6.3 msf, while supply rose more than two-fold to 5.6 msf during 2016. Hyderabad, is in the midst of frenzied activity from investors and businesses since last yearresulting from the government’s proactive steps to create “Brand Hyderabad” through investor-friendly policies and improving infrastructure. The IT-BPM sector’s leasing remained buoyant in the city pushing up the net absorption numbers during the year. During 2016, Madhapur continued to be the preferred submarket for occupiers, with the submarket accounting for 60% of net absorption in the city. Madhapuralso witnessed 4 msf of supply, over 70% of the 5.6 msf supply in the entire city. Despite the high influx of supply, the submarket is veering towards saturation with vacancy of only 3.2% at the end of December.

DELHI-NCRSEES 9% DROP IN NET ABSORPTION AS CONSOLIDATION CONTINUES

During 2016, Delhi-NCR witnessed approximately 4.3 msf of net absorption, a 9% drop from last year as companies continued to consolidate their offices in Gurgaon and Noida for greater productivity and cost efficiencies. Almost half of the net absorption during the year was seen in the Gurgaon Others market, with Noida being a close second. With the capital region already having witnessed a record 11 msf of supply in 2015, the year 2016 saw moderate supply of 3.6 msf with the aforementioned two submarkets seeing substantial shares as vacancies remain high in the peripheral submarkets.

MUMBAI SEES PICK-UP IN DEMAND YEAR LED BY THANE-BELAPUR MARKET

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Demand in Mumbai bounced back in 2016 with the city witnessing a 4% increase in net absorption to 3.3 msfas expansion strategies of companies bore fruition in the form of fresh space uptake during the last three months of the year. The Thane-Belapur submarket accounted for 20% of the leasing activity, as the market continues to be attractive for occupiers. Competitive rentals hovering around USD 1/sf/month, planned infrastructure in the location and availability of quality Grade A space is attracting occupiers, especially in the IT-BPM, space to this belt.

PUNE SEES MASSIVE FALL OF 47% IN NET ABSORPTION

Pune witnessed a 47% drop in net absorption during 2016 to 3.3 msf as leasing from IT-BPM sector dropped due to deferment of supply. The share of IT-BPM dropped to 28% of total leasing in 2016 from 45% share last year due to lack of contiguous space in preferred submarkets. Lack of available space also led to a lower share of IT-BPM sector in large deals (above 100,000 sf) in the city. Supply was subdued during the year in Pune, declining by 60% to 3.1 msf. The SBD East submarket comprising Kalyani Nagar, Kharadi, Mundhwa, Yerwada, Nagar Road, Viman Nagar, Hadapsar, and Kondhwa accounted for majority of the net absorption and supply during the year.

CHENNAI’s NET ABSORPTION DOWN BY 20% AMIDST FEWER LARGE DEALS

In Chennai, net absorption declined by 20% to 2.9 msf, as the city witnessedfewer large deals (above 100,000 sf) in the market, as against 2015. Net absorption in the first nine months of the years was especially weak, with activity picking up only in the last quarter. Roughly 1.2 msfof the net absorption was seen in Suburban South submarket comprising of Perungudi, Taramani, Thiruvanmiyur and Velachery. The total supply in Chennaideclined 31% to 1.9msf during 2016, with majority seen in the Suburban South market.

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KOLKATA SEES 22% DROP IN NET ABSORPTION; MARKET MARKED BY SMALL DEALS

Net absorption in Kolkata dropped 22% to 0.8 msf in 2016, as the year was marked by small-sized deals in a weak market. The business sentiments in the Kolkata market continued to remain subdued, which also led to 71% lower supply to 1 msfI 2016. Sector V Salt Lake remained the preferred submarket, accounting for 72% of the leasing activity during the year.

SUPPLY IN AHMEDABAD UP TWO-FOLD TO 3.3 MSF

In Ahmedabad, supply rose two-fold to 3.3 msfduring the year- the highest levels the city has seen since 2011. On the other hand, net absorption was noted at 0.7 msf during 2016, a 7% increase from 2015 levels. S.G Highway witnessed the maximum net absorption and supply during the year.

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