HomeNews2019 sets new record in commercial real estate leasing

2019 sets new record in commercial real estate leasing

Its strange contradiction within real estate sector that two segments moving in opposite direction for last few years. While residential sector is struggling to come out of slowdown, commercial office sector is setting new record every year. Again, in calendar year (CY) 2019, the Indian Commercial Real Estate (CRE) office market has seen record leasing. Indian CRE has recorded 42msf of annual net absorption in CY19 as against 27msf seen in CY18. In CY17 absorption level was 24msf. Previous best absorption level was seen in CY 2008 at 37msf. In CY2014-16 period too annual absorption level was hovering around 30msf.

Despite such high level absorption rate, Indian office market continues to see low vacancy levels and limited supply in the preferred micro-markets across India’s tier-I cities. In CY19, record completions of 44msf have led to 42msf of net absorption as a large portion of upcoming supply was pre-committed.

Among cities, Bengaluru and Hyderabad markets continue to see the strongest demand among occupiers while select micro-markets in other cities such as Central Business District (CBD) areas of Gurugram in NCR continue to see strong occupier interest.

The preferred locations for offices in cities such as Bengaluru and Hyderabad have Grade A vacancies of just 5-6% and corporate occupiers are now looking at pre-booking space in preferred locations given unavailability of large spaces.

While its true that leasing demand from Indian companies (excluding IT) may see a slowdown, this may be cushioned by demand from MNCs for captive centres and domestic IT companies also preferring to lease assets as opposed to outright purchases/own campuses.

According to a report by Colliers India, India has more than 160 co-working space operators running over 350 centres in India. Of this, majority of the centres are based in Bengaluru, Mumbai and NCR having occupancies of 60-80%. As per industry estimates, co-working spaces accounted for absorption of 3-4msf each in CY17-19 with another 7-8msf of space expected to be absorbed over CY20-21E.

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