India Office MarketView Report

CBRE India, India's leading Real Estate Consulting firm, announced the findings of its latest India Office MarketView Report – Q4 2016. As per the findings, India's office market witnessed an ALL TIME HIGH annual absorption of over 43 million sq. ft. in 2016, registering a growth of 9% on a y-o-y basis. Supply addition during the year touched 35 million sq. ft. with India's office stock reaching a milestone of over 0.5 billion sq. ft. (as of Q4 2016) - higher than several East Asian economies.

Realty Bytes: 2016 at a glance

• Bangalore and NCR dominate leasing on an annual basis with 47% share
• IT/ITeS firms continue to lead office transaction activity; account for about 50% of the transaction activity during the last quarter
• Hyderabad witnessed a steep rise in occupier demand, with absorption more than doubling to cross 6 million sq. ft.
• Small to medium sized transactions (under 50,000 sq. ft.) remained the preferred format of occupation
• The share of domestic corporates in transaction activity grew from 41% in 2015 to 43% in 2016
Mumbai and Bangalore accounted for almost half of the annual supply addition

2017: The Way Forward

• PE players to continue to invest sizable monies in commercial real estate
• Overall take-up expected to remain strong in 2017; REITs to have a positive impact.
• Corporate occupiers likely to remain cost sensitive, consider adoption of workplace strategies for efficient space-utilization
• Infrastructure improvements to be a critical factor for occupier location strategy
• Pre-let activity to continue in quality, cost-effective projects that are nearing completion
• Rental divergence expected between core (tapering growth) and peripheral micro-markets (growth stable/rise)
• Tenants willing to pre-commit to have an upper-hand in rental negotiations

City Highlights - Q4, 2016

• National Capital Region
  
  • Quarterly leasing almost doubled with Gurgaon continuing to lead leasing activity in the NCR, constituting a share of 61%
  • Rents across micro-markets remained stable with the exception of DLF Cyber City.
  • Leasing activity occurred mostly in the form of small-medium sized transactions (10,000 – 50,000 sq. ft.)
• Mumbai
  
  • Transaction activity was largely stable, as compared to the previous quarter
  • Leasing activity in Peripheral markets of Vikhroli, Goregaon, Malad and Airoli accounted for almost 60% of office take up in the city
  • Rental and capital values continued to remain stable across most micro-markets
• Hyderabad
  
  • Hyderabad, witnessed a steep rise in occupier demand, with absorption more than doubling to cross 6 million sq. ft. during 2016
  • More than 80% leasing activity was concentrated in the IT Corridor
  • About 2-7% rental increase reported in CBD, IT Corridor and Extended IT Corridor
• Bangalore
  • Rise in quarterly demand, mainly in ORR, PBD and NBD
  • Supply completion also largely concentrated in ORR, PBD and NBD;
  • Continued rental escalation across most micro-markets
• Chennai
  
  • Strong leasing activity reported in 2016, OMR Zone I and OMR Zone II contributed to over 60% of the leasing activity
  • Rentals continued to strengthen across major micro-markets; supply addition restricted to small-sized IT/ non-IT developments
• Pune
  
  • Small-to-medium sized transactions drove demand for office space
  • Supply completion in the form of small to medium-sized non-IT and SEZ developments
  • Rental values grew in the IT and non-IT segments across most micro-markets
• Kolkata
  
  • PBD micro-markets of Salt Lake V and Rajarhat continued to lead leasing activity
  • Rental values remained stable across all micro-markets
  • Supply addition mainly in SBD and PBD

Commenting on the findings of the report, Mr. Anshuman Magazine, Chairman –India & South East Asia, CBRE said, "The commercial real estate market in India has been performing well for the past two years. This is evident in the record absorption levels witnessed in 2016. India continues to show positive movement, despite global uncertainties. Policy initiatives undertaken by the Government in the recent past is expected to bring transparency into the sector, which is a much needed step towards enhancing consumer and investor confidence."

City	Office Supply (%)
	2016	2015
Delhi - NCR	8%	26%
Mumbai	23%	9%
Bangalore	23%	32%
Pune	8%	9%
Chennai	8%	7%
Hyderabad	17%	15%
Kolkata	13%	1%

"Commercial activity and occupier demand is expected to remain steady in the coming months, backed by corporates looking to expand/consolidate operations. Regulatory clearances in key locations are also likely to boost leasing activity in the coming quarters. Occupier enquiries for medium to large sized office spaces are expected to be closed in forthcoming quarters, adding to the transaction momentum. Due to the limited availability of ready to move in Grade A supply, occupiers with medium and large size requirements will focus on pre-commitments in under construction/built-to-suit developments across key micro-markets in the leading cities in the country. Occupiers, while expanding their footprint, are likely to keep a strong check on city infrastructure and focus on space utilization ratios and innovation in workplace strategies." said Mr. Ram Chandnani, Managing Director – Advisory & Transaction Services, CBRE South Asia Pvt. Ltd.

On the supply front, a significant quantum of space is expected to be released in the decentralized locations of leading cities over the next few quarters. Most of this supply is concentrated in peripheral locations of leading cities, which is likely to attract enhanced enquiries and strong pre-commitment activity in the coming months. The Government's policy initiatives (RERA and REIT), coupled with the impact of the recent demonetization drive is likely to result in the formalization and regulation of the sector. This in turn, is expected to boost transparency and investment flows into the commercial real estate sector, going forward.