2015: Close to a record year for India’s office leasing

November 23, 2015 / By  

India’s office space absorption during 2015 is forecast at 35 million sq ft – the second highest figure in the country’s history, after 2011. This will be possible because of the performance of markets such as Bangalore, Hyderabad, Pune and Chennai. Bangalore alone will likely contribute about 10 million sq ft – close to one-third of the total. Chennai will likely absorb 3.7 million sq ft in 2015 – nearly double the amount seen in 2014. At a pan-India level, 2015 will likely be a year when demand surpasses supply, prompting the vacancy rate to decline.

While the absorption of 2015 is similar to 2011, it is distributed across new and old buildings, whereas previously it was largely in newly completed buildings. The demand for office space during 2011 was because of demand from occupiers taking advantage of low rents after the global financial crisis; this time, it is largely because of implementation of growth plans by corporates. Cities such as Pune, Bangalore, Hyderabad and Chennai have a vacancy rate of just 5-10%, prompting the need to build fresh supply to meet growing demand.

Figure 1 : 2015 and 2011: Changes in industry’s share of office absorption


Source: JLL (Real Estate Intelligence Service)

Figure 2: 2015 and 2011: Changes in city’s share of office absorption

Source: JLL (Real Estate Intelligence Service)

A few emerging categories, such as e-commerce, telecom and health care, are witnessing strong growth in office space leasing in major cities. The contribution of e-commerce to total absorption increased from just 0.3% in 2011 to 6% in 2015 (Figure 1). Some headline e-commerce transactions in 2015 have included Snapdeal leasing about 450,000 sq ft in Gurgaon and Flipkart committing to about 2 million sq ft in an under-construction project in Bangalore. The telecom and health care industries have had a good year. UHG, a global health care major, absorbed 200,000 sq ft in Hyderabad, while leading telecom company Vodafone has taken up 133,000 sq ft in Pune. The IT/ITeS sector – the major industry driving demand for office space – retained its top ranking among categories. Banking, Financial Services & Insurance (BFSI) companies are gradually expanding their footprint in IT dominated cities such as Bangalore and Chennai.

With industry type and share levels in absorption changing and the emergence of new categories, occupier choice over cities has also altered (Figure 2). Bangalore is likely to outperform in absorption in 2015, taking the position Mumbai held during 2011. Suitable office space at competitive rents and a young, creative talent pool make the city a major business destination. Hyderabad is another city showing good momentum in leasing after settlement of political issues in the state.

The performance of 2015 may be followed by relatively lower absorption in 2016, when the country is forecast to witness absorption of about 31 million sq ft. However, we do not foresee much of a drop-off in 2016 due to the present strong economic fundamentals and the optimistic forecast for India’s GDP.


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