Top cities to see 8-year high in office absorption in 2019, says JLL

The country’s top seven cities are, says a study, expected to see an eight-year high in the coming year in absorption of office space.

The cities are Delhi/NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune, and Kolkata. The study is by proprty consultants JLL. A little over 37 million sq ft is expected to get absorbed in these cities, earlier seen in 2011, it said. “During the next two years (2019 and 2020), these seven markets are expected to witness net absorption of over 76 mn sq ft. We expect 126 mn sq ft of robust supply in the next three years, based on launch of new projects in several markets,” said Ramesh Nair, chief executive of JLL India.

He said with 8.2 per cent growth in Gross Domestic Product in the financial year’s first quarter (April-June) and India’s position improving considerably in the World Bank’s Ease of Doing Business index, the economy was on a strong growth path.  “This will have a positive impact on the real estate sector, especially demand in the commercial office segment. For developers, it will be a fruitful step to invest in creating more,” he said. Nair expects a little over 33 mn sq ft of net office space absorption by the end of 2018. Compared to 2017, this would translate to 16 per cent growth. The absorption rose 18 per cent on a yearly basis in the first nine months, JLL said, from 23.4 mn sq ft in the same period of 2017.

“This double-digit growth is driven by strong economic fundamentals, demand for good quality, grade-A office space, institutional investments in commercial office assets, along with the co-working office trend catching up in key markets,” Nair said. The sector, he added, which had seen consistent and robust performance in the past five-odd years, was undergoing a major shift. This was due to the advent of technology, automation and the shared economy, reflecting clearly in the volume of office space transactions for the top seven markets.

Bengaluru saw the highest absorption of office space at 7.9 mn sq ft in the first nine months of this year, in absolute volume terms, JLL data shows. Mumbai (4.2 mn sq ft) and Delhi/NCR (4 mn) were next, with the three cities contributing almost 70 per cent of the absorption across the country.

“The demand for office space in these cities has been primarily driven by sectors such as information technology and IT-enabled services, banking & insurance, manufacturing and consultancy services. E-commerce and co-working service providers are also contributing to the demand,” Nair said.

In percentage terms, Chennai saw a 92 per cent increase in this measure, at 2.3 mn sq ft. Pune was next, with 50 per cent  growth over a year, at 2.1 mn sq ft.

Hyderabad and Kolkata recorded absorption of 2.2 mn sq ft and 0.7 mn sq ft, respectively. JLL expects an increase in the transaction volumes by the end of the year for these cities.  

Co-working service providers have been instrumental in driving the demand for office space absorption, contributing a little over a tenth of total office space take-up in these seven markets in the nine-month period, Nair said.

“In terms of vacancy for grade-A office space, Bengaluru, Hyderabad, Pune, and Chennai are all in single digit. This demand was traditionally driven largely by IT and IT-Special Economic Zone occupiers but, of late, we are observing a steady rise in the share of non-IT office developments in cities that have been traditional IT hubs,” he added.

Realty check

•  33 mn sq ft   Total absorption expected in 2018
• 23.4 mn sq ft Total absorption between Jan and Sep 2018
• 37 mn sq ft   Total absorption expected in 2019
• 26 mn sq ft   Total supply expected in three years