Pune’s commercial real estate challengesJanuary 25, 2017 / By
Large occupiers currently face a crisis in Pune, with a low vacancy rate of around six per cent in its office market. Minimal options remain for companies that wish to occupy now or in the immediate future.
Source: JLL Research
What this means for occupiers
The limited availability of space within Grade A projects in the city has given rise to the trend of tenants commissioning built-to-suit construction, pre-committing to space in under-construction projects, or opting for Grade B properties. A few recent examples of tenants having to do so include Infosys, Siemens, Citibank and Amazon, which secured space in buildings still under construction. Limited availability of space and high demand in the city brought about the lowest vacancy rates in three years. Rents rose steadily as a result. Gross rent in the city registered overall growth of 8.5 per cent in 2014, 11.5 per cent in 2015 and 7 per cent in 2016.
Possible solutions and forecast
There are two possible solutions, one a short-term and the other, a long-term one. Developers are contemplating the launch of new projects but this works only as a long-term measure without providing immediate relief for the market. The other shorter-term option is to revive other asset classes such as retail or hospitality, and convert them into office space.
Total stock in the city stood at 49.7 million square feet at the end of Q4 2016. The city is expected to see supply of around 11 million square feet until the end of 2019. Out of this 11 million square feet, 80 per cent is likely to enter the market in 2018 and 2019. With this current supply, the city is likely to witness absorption of 10 million square feet from 2017 to 2019. However, absorption is estimated based on the current visibility of projects under construction and announced so far.
This chart indicates that demand is strong but capped because of supply issues.
Evolution of new commercial areas due to limited vacant space in established sub-markets
Pune is likely to see the emergence of new commercial district nodes such as Nanded City, Pirangut and the PCMC area. These areas have managed to attract prominent developers due to their strategic location, comparatively low land cost and good connectivity to central areas. The crisis of limited space may support the emergence of new areas and has turned out to be a blessing in disguise, encouraging the opening up of new commercial areas while solving the problem of failed malls at the same time.
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