Cities like Bangalore, Delhi, Gurgaon and Kolkata witnessed increase absorption for office space on a quarter-on-quarter (QoQ) basis. Bangalore and National Capital Region (NCR) topped the chart contributing 75 in the total absorption of the same. In first quarter of 2014, commercial leasing in eight major cities were recorded at around 8 million square feet including 1.7 million square feet pre-commitment from large corporates for future expansion. Bangalore witnessed the highest absorption to the tune of 3.8 million square feet followed by 2.3 million square feet in NCR. IT/ITeS sector topped the charts and remained the primary demand driver IT/ITeS followed by engineering and BFSI sectors.
Mumbai, Chennai and Pune, have witnessed decreased demand this quarter. Mumbai's office markets witnessed a further decline in office space absorption indicating cautious occupier sentiments. This lack of demand can be attributed to a low level of IT/ITeS sector participation in the overall absorption in the city that is currently the primary demand generating sector across the cities. Pune has witnessed more than 0.85 million square feet of absorption in first quarter of 2014, which is relatively less than the last quarter's net absorption of 1.55 million square feet. However, more than 65% of the transactions were for expansion indicating rebounding business confidence levels.
This quarter around 7 million square feet of new office space entered in to the market. Of the 7 million square feet of new office inventory space (in total) added in first quarter of 2014, about 40 per cent were located in Bangalore and the remainder was evenly split between all other markets. The current overall vacancy levels remained stable due to supply demand equilibrium in almost all the cities.
According to a report by Colliers International, the occupiers are looking beyond the Commercial Business District (CBD) and SBD markets for more strategic opportunities. In 2014 will see a continuation of this trend, as players in search of more cost-effective solutions to cut their real estate costs will move towards the PBD. Improving sentiment and prospects for the global economy as well as rising business and consumer confidence should all combine to boost the occupier sentiments. The strong software export figures indicate confident business sentiment especially for IT/ITeS tenants who make up the bulk of tenants in coming quarters.
Says Joe Verghese, managing director of Colliers International, the improvement in the global economy, which, until now did not translate to positive trends in Indian real estate markets is now starting to have an impact on the Indian markets as decision makers feel that the worst is behind them and the elections results could only further improve the sentiments. Absorption has thus picked up and in anticipation of increased absorption after the elections, developers are starting to plan for new product launches and possible price increases post the announcements of the election results.
