Despite various disruptions including the advent of technology and new office formats, overall demand for office space remained robust in 2017 with absorption crossing 42 million sq ft, a recent survey said.
According to a study by CBRE, the annual absorption of office space across eight metros crossed 42 million sq ft in 2017, driven by the IT sector with a 32 per cent share.
Annual supply for prime office space was over 29 million sq ft during the year, a decline of about 18 per cent as compared to 2016.
"After a record 2016, the growth momentum of India's office market continued in 2017 as well. Despite the advent of technology and new office formats, like the co-working spaces, overall demand for office space remained robust," CBRE chairman India and South East Asia Anshuman Magazine said.
Besides IT, the other segments that drove demand for office space across key cities were BFSI (19 per cent), engineering and manufacturing (17 per cent) and research consulting and analytics firms (eight per cent).
According to the report, demand for co-working space continued to witness an uptick, almost quadrupling in 2017 to touch 2.6 million sq ft, with both global and domestic players continuing to expand their operations in key cities like Bangalore, Gurgaon and Mumbai.
On an annual basis, the southern cities of Bangalore, Hyderabad and Chennai witnessed a rental increment across almost all micro-markets. Delhi NCR, on the other hand, witnessed a rise in rental values in core locations only.
Almost 90 per cent of all transactions in 2017 were for small to medium-sized spaces and the share of global corporates operating in the country also increased during the year, the report said.
Bangalore and Delhi NCR accounted for over 50 per cent of annual leasing activity.
"While key metros continued to witness activity, we are seeing several smaller cities emerging as preferred locations by corporates looking to expand their footprint in the country. Hyderabad was one such city which has witnessed significant activity and demand for office space in the past 12 months," Magazine said.
CBRE expects the demand for office space to remain steady across key locations in the country this year as well.
"Smaller cities could also see a rise in demand, on the back of healthy supply introduction in these locations. 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," its managing director Advisory and Transaction Services India Ram Chandnani said.
On a quarterly basis, sustained occupier interest resulted in leasing activity rising by about 18 per cent as compared to October-December 2016, crossing 12 million sq ft.
"While Bangalore and Delhi-NCR continued to remain the key drivers, Hyderabad overtook Mumbai in terms of office leasing during the quarter. Supply addition during the quarter was close to 11 million sq ft," the report stated.
Similar to previous quarters, space taken up was dominated by small and medium-sized transactions.
Almost 45 per cent of all transactions were for small-sized (less than 10,000 sq ft) spaces while 43 per cent was for medium-sized spaces.
The share of large-sized deals (greater than 100,000 sq ft) was similar to the previous quarter, garnering a share of five per cent.
"Bangalore and Gurgaon dominated large-sized deal closures, along with a few deals closed in Mumbai and Hyderabad," the report said.
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