Pune’s Office Property Supply Crunch to Ease by 2019

Pune’s low office space vacancy rate of around

6.0% is proving to be a serious challenge for companies seeking large spaces to establish or expand their operations in this thriving city. Pune is currently witnessing a commercial real estate supply crunch across most sub-markets. This leaves hardly any options for large occupiers with immediate requirements or with limited ability or willingness to wait for the supply issues to ease.

Source: JLL Research                                                                                            

Implications for occupiers

The limited availability of spaces within Grade A office projects in Pune is causing tenants to commission built-to-suit construction, pre-committing to space in under-construction projects or opting for Grade B properties. Recent examples:

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Infosys, Siemens, Amazon and Citibank had secured spaces when the buildings were still being constructed

Companies such as Accenture, Bitwise and Eaton preferred the built-to-suit option.

With the limited availability of and high demand for high-quality office spaces in the city bringing about the lowest vacancy rates in three years, rents have steadily increased. Gross rents for good quality commercial spaces in Pune grew by 8.5% in 2014, 11.5% in 2015 and 7.0% in 2016.

Forecast

There are two possible solutions to this situation. As a long term measure, Pune’s office space developers are obviously intent on launching new projects which would take time to hit the market as ready supply. Most of the upcoming large projects are in the initial construction stages and may take between 18-36 months to complete. A short-term option to induce faster supply is to revive under-or-non-performing commercial buildings in the retail or hospitality segment and converting them into office spaces. In fact, the market is heading towards both these directions to reduce the demand-supply gap.

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Pune is expected to see commercial real estate supply of around 11 million sq ft until end-2019, out of which 80% is likely to hit the market in 2018 and 2019. A healthier office spaces pipeline will allow occupiers to choose spaces with more flexibility, and help the city establish a badly-needed demand-supply equilibrium in the office segment. Office space vacancy in Pune is projected to rise by a mere 6% in the next 2-3 years. Another source of supply that emerged recently is the refurbishment of retail or mixed-use developments with commercial space as a part of the product mix.