Net office space absorption dips by over 25% in 2013: C&W

Global real estate consultants, Cushman & Wakefield (C&W) said that total net office space absorption recorded a 25 per cent decline in across top eight cities over last year.

“The total net absorption for 2013 was recorded at 23 million square feet (msf). Most cities have witnessed a decline in net absorption in the range of 20-40 per cent during the year, except Pune where incremental new space take-up increased by 15 per cent in 2013,” it said, adding that Mumbai registered the highest quantum of net office space absorption at 4.7 msf, followed by Bengaluru with office space absorption of approximately 4.6 msf in the year of 2013.

The report said the net absorption recorded decline, mostly on account of companies focusing on relocation, expansion and consolidation in order to rationalise costs as well as create greater value for the company operations within the country.

Sanjay Dutt, executive managing director, South Asia, C&W said, “Caution prevailed across corporations due to the slower growth of the Indian economy. Also at the political arena, this has been a year of realignments and retrospect. Given which Indian and global corporate had decided to remain invested but contained their expansion plans.  Going forward, with the political dust settling by the mid of next year post general elections, we expect net absorption to start picking up pace.”

“With pricing remaining largely stable, next year will be an occupiers’ market offering better quality office space for competitive pricing.  Leasing activities will see an increase both on account of entry of new companies into the country, expansion of existing companies and indeed relocation and consolidation activities that are expected to continue,” he added.

Private equity investments in real-estate have remained healthy in 2013 with large contributions from investments in pre-leased office assets. Investments in office assets have been concentrated in the cities of Bengaluru and Pune.

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In Bengaluru, investments in office assets were concentrated in the Outer Ring road, which over the past few years has grown due to availability of quality supply at competitive rentals for IT-ITeS companies coupled with the locations enjoying easy connectivity to social infrastructure and proximity to emerging residential catchments. Close to 46 per cent of the overall net-absorption in 2013was concentrated in the Outer Ring Road belt. Large investment funds have also been invested heavily in office assets in Pune, primarily in the micromarkets of Hinjewadi and Kharadi. With the presence of large IT parks offering competitive rentals and the availability of necessary infrastructure to support both residential and office sector growth, Hinjewadi and Kharadi have always had high preference by the IT-ITeS industry.

Sanjay further continued, “Investors have taken a keen interest in office spaces, especially in future high growth locations. Of the total investment in commercial real estate market, majority has been in Outer Ring Road of Bengaluru, which is expected to see majority of office leasing activities. Similar outlook is maintained for the region of Hinjewadi in Pune. These will be markets will remain tight with a balance in office absorption and supply, and will see the highest quantum of leasing activities at competitive pricing in the next 12 – 24 months.”