In a board sign that the Indian economy is perhaps taking baby steps to a recovery after being in the doldrums for some time, a recent report by global integrated property solutions company DTZ has said that information technology (IT) and IT-enabled sector is the primary demand driver for office space across Delhi-NCR, accounting for the large majority (81 percent) of total take-up in Q2, compared to 36 percent in Q1.
IT and ITeS are key to the Indian economy’s fortunes because of their contribution to GDP.
Underlining the importance and significance of the infotech and its related sectors especially for the office space domain across Delhi-NCR, the report said:” “Delhi-NCR witnessed an increase in demand for space by ITeS companies in specialised domains like telecom aviation and BFSI (Banking, Financial services and Insurance)”, adding that the demand is likely to grow in the second half with corporates expected to increase hiring activities given the expectation of an economic revival.
The higher demand from the IT/ITeS sector also led to increased office space absorption by 11% to 1.38 million square feet in Delhi-NCR during the April-June quarter.
However, it is pertinent to point out that the absorption actually fell by 18% on a quarter-on-quarter basis.
“Office space in Delhi NCR witnessed total take-up of 1.38 million sqft in Q2, representing a decrease of 18% q-o-q (quarter on quarter) but an increase of 11% y-o-y (year on year),”DTZ said in its report.
Rentals, however, remained stable in all the micro-markets due to new supply, the report said.
DTZ describes take-up as floor space acquired for occupation that includes office let out to an eventual occupier and developments pre-let or sold.
According to experts in the industry, the election of a stable BJP-led Government at the Centre will further help matters to improve.
Transactions of more than a 100,000 sqft accounted for 60 percent of total absorptions in Q2 against 26 percent in Q1.
“Multinationals based out of Europe accounted for 60% of demand over the quarter, which was 16% in the previous quarter. Multinationals based out of US and India contributed 10 percent and 11 percent respectively,” DTZ said.
Gurgaon witnessed a 5 percent q-o-q increase in demand for space, primarily from the IT/ITeS domain. Noida and Delhi saw a q-o-q decline.
“There was, however, an increase in enquiries for leasing space which are expected to close in the coming quarter,” the report says.
DTZ noted that rentals are not expected to see significant growth due to the currently high vacancy levels and robust development pipeline despite expected growth in demand during the second half of this year.
What is also heartening is that amid reports of slowing down of realty constructions and project completions, Delhi/NCR witnessed a 75 per cent rise in project completions in Q2 over the previous quarter.
“New supply of 5.3 million sq ft became operational in Q 2 across 13 projects i n the P B D (primary business district reg ions) and SBD (secondary business district regions),” the report said .
Vacancy in Q2 stood at 32.6 per cent, an increase from 28.9 per cent in Q1 due to addition of new space in the market.
In absolute terms, vacancy in Q2 was 28.9 million sq ft compared to 24 million sq ft in the previous quarter. Noida contributed 37 per cent to the overall vacancy, Gurgaon 32 per cent and Delhi’s SBD 30 per cent.
DTZ provides occupiers and investors around the world with end-to-end property solutions consisting of leasing agency and brokerage, integrated property and facilities management, capital markets, investment and asset management, valuation, building consultancy and project management. In addition, DTZ’s research and consulting services provide clients with global and local market knowledge, forecasting and trend analysis.