Lease size classification for Indian office spaceApril 14, 2021 / By
In the post-COVID recovery, stakeholders in commercial real estate need to thoroughly understand product characteristics, in order to build office space suitable for different customers and industries, whether they come from core sectors or from Information Technology. Likewise for occupiers, a clear understanding of their real estate requirements is essential to staying ahead of the competition.
Based on the above thinking, we have classified leases in commercial space into four categories:
- Less than 10k sq ft
- 10k − 50k sq ft
- 50k − 100k sq ft
- Greater than 100k sq ft
These four size categories are further broken down into volume (number of leases) and size as a percentage of the total area leased.
Figure 1: Size of leases in India (breakdown by no. of tenants)
Source: JLL REIS
- Since 2012, the majority of leases was in the ‘Less than 10k sq ft’ category, whereas 2010-11 saw the highest number of leases in the ‘10k – 50k sq ft’ category. Interestingly, from 2010 onwards, nearly 90% of the occupiers in India have taken up less than 50k sq ft.
- This trend is likely to continue as large occupiers are looking to decentralise and adopt the hub-and-spoke model to future proof themselves as part of their Business Continuity Planning (BCP) as a direct result of the pandemic.
Figure 2: Size of leases in India (breakdown by area)
Source: JLL REIS
- On the other hand, leases in the ‘Greater than 100k sq ft’ category have accounted for the majority of the total area leased throughout the considered period. It has been on an upward trajectory since 2018 due to single-digit vacancies in Prime sub-markets, thanks to MNCs and major IT companies, which have been queuing up to pre-commit to large spaces in most of the quality future supply.
- From 2010 to 2020, around 60% of the total area leased was in the ‘Greater than 50k’ category, which constitutes just 10% of the total number of tenants.
- In 2020, 78% of the total area leased was greater than 50k sq ft, and it was by just 13% of India’s total number of tenants.
Mumbai, Delhi and Kolkata have the greatest number of smaller tenants taking up ‘Less than 10k sq ft’. This is largely because over 50% of space on offer consists of the strata space and pure non-IT assets, which appeal to an evenly distributed mix of occupiers from various industries/sectors. There are more pure commercial non-IT occupiers, but they require relatively smaller spaces than IT companies.
Figure 3: Size of leases city-wise 2015-2020 (by area)
- The majority of the area leased in Bengaluru (71%) and Hyderabad (65%) is from the ‘Greater than 100k sq ft’ category, at 21% and 15% (respectively) of the total number of tenants. Similarly, over 42% of the area leased in Chennai and Pune is in the same category, at 5% and 8%, respectively.
Large IT occupiers, MNCs and BFSI (back office) companies require large office spaces with extensive floor plates, campus-style space and modern amenities, but at a relatively lower rent than the prime sub-markets of Mumbai and Delhi offer. All these conditions can be found in Bengaluru, Chennai, Hyderabad and Pune. In Mumbai and Delhi, it is more of a volume game, whereas other major Indian cities see most of their take-up from a few large occupiers.
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