After a dull period in 2012-13, office markets have begun to show vibrancy over the past few years. The total investments in the asset class indicate a positive growth. The latest report by real estate consulting firm JLL India, titled Emerging Trends in India's Office Secto' highlights some of the key growth areas such as rate of new completions, net absorptions and falling vacancy levels, among other sectoral and geographical trends.
The data, till the first three quarters of calendar year 2018, not only lays down the past trends, but also forecasts the near future for office market, especially among the top six to seven cities, including Mumbai, the National Capital Region (NCR), Chennai, Bengaluru, Hyderabad and Pune.
Key among these areas are office supply in terms of new addition or completions, demand in terms of net absorptions and vacancy levels, and office space occupier mix that has been changing since the last few years.
Pan-India office supply
According to the report, the country's current Grade-A office stock stands at 532 million square feet (sq ft). This is likely to surpass 700 million sq ft by 2022. After a marginal decline in 2017, the office market is set to grow noticeably in the future. The net absorption for 2018 is projected at 33.3 million sq ft -anticipated to surpass 39 million sq ft by 2020.
Strong economic fundamentals, growing urbanisation and improving transparency will be the key factors driving commercial markets.
This would be augmented by completion of around 38-45 million sq ft of office space till 2020, indicating a strong supply pipeline. On the other hand, with steady absorption projection, the overall office sector vacancy is likely to gradually come down in the medium term (2018-2020).
Already, the vacancy levels have declined by 30 basis points (bps) to 13.7 per cent in the third quarter of 2018 compared with 14 per cent in the previous. This was due to a higher demand and lower completions during the quarter at a pan-India level.
Occupier distribution trend across top 7 cities
The office space supply and demand have also seen a push from a changing mix or distribution of occupiers. The share of non-IT firms, especially in the top seven cities has also increased. Significant office space is being taken up by non-IT/ITeS occupiers such as BFSI firms, consultancy businesses, telecom, healthcare, biotech, real estate construction, e-commerce and co-working service providers.
A city-wise glance of space take-up by non-IT/ITeS occupiers reveals that the manufacturing/industrial sector has led the space take-up from 2013 to Q3 2018 in Bengaluru, Delhi-NCR and Chennai. However, in Mumbai and Pune, BFSI has been the most prominent one. For Hyderabad, while BFSI was the most prominent sector in the non-IT/ITeS space take-up in 2013-2016, the emerging e-commerce sector and consultancies have started gaining prominence in 2017, and the first three quarters of 2018.
In Kolkata, the manufacturing or industrial sector absorbed highest proportion of non-IT/ITeS office space in 2013-2016 which changed to consultancies as they gained prominence in 2017. But, it reverted again to the manufacturing or industrial sector, contributing the maximum during the quarter under review.
During the first three quarters of 2017 and 2018, of the total non-IT/ITeS space absorbed by different sectors, substantial space was taken up by the emerging co-working sector. This was led by an increase in number of office occupiers or tenants, who consider shared space as a preferred option for office operations. This has been evident from the fact that pan-India share of co-working space in total office leasing has more than doubled by end of Q3 2018 compared to the corresponding year-ago period.
Co-working space
The share of co-working sector in total office leasing touched approximately 10 per cent by Q2 2018 compared to 4 per cent during the first three quarters of 2017. Simultaneously, area under co-working spaces in the top seven cities has grown from 1.1 million sq ft for the first three quarters of 2017 to 3.44 million sq ft in the first three quarters of 2018.
A look at the changing proportion of the co-working spaces to the total office leasing in each of the top six cities throws some interesting trends, too. Of the six key cities, Mumbai, Bengaluru and Delhi-NCR have indicated marked increase in their proportion of co-working spaces to their total office leasing.
However, during the first nine months (January-September) of 2017, Pune recorded the highest proportion of co-working space to total office leasing at 10 per cent, while during the first nine months of 2018 Mumbai recorded the highest proportion at 21 per cent.
Meanwhile, in Chennai and Hyderabad, where co-working sector is in its nascent stage, it indicated a relatively low proportion to total office leasing. Hence, no major variation in the proportion of co-working spaces to total office leasing between first nine months (January-September) of 2017 and 2018 was recorded.