120 mn sq ft of office space likely to be absorbed in next 3 years: Colliers

India has seen investment transactions totalling $2.4 billion (to Rs 15,600 crore) in the first-half (H1) of 2018, up 26 per cent compared to H1 of 2017 ($1.9 billion).

Among the investment transactions, the commercial segment dominated with global players such as Blackstone, Brookfield, and Xander remaining bullish on investment in commercial real estate in H1 2018.

With increasing investment, the CRE market has witnessed major structural changes in the way commercial real estate is built, financed and managed.

According to Colliers research, the change in ownership from local developers to institutional investors and advent of REITs should lead to the institutionalisation of CRE in the next three years. It is estimated that 120 million sq ft (11.2 million square meters) of gross office space absorption would happen in the next three years. The demand is likely to be supported by a robust supply pipeline of about 124 million sq ft (11.5 million square meters) of office stock in the major cities.

“In 2018 and beyond, we believe the demand for office space will be led by the technology, engineering, manufacturing, e-commerce, logistics and finance sectors, along with co-working operators. The growth in corporate real estate will, however, not be without its challenges,” Nimish Gupta, Managing Director, RICS South Asia.

He further said: “Change in global policies, protectionist trading positions taken by some countries and the resultant fluctuation in global growth are already affecting the way occupiers lease or buy office space. We have seen the emergence of co-working spaces in a big way. It represented about 8 per cent of office space absorption in 2017, compared to the previous year's share of 3 per cent. Technologies such as automation/ artificial intelligence could replace traditional job roles in industries such as IT and BFSI. A loss in jobs and a change in the work culture are likely to have an impact on the way companies lease or buy office space.”

Despite the recent strong demand for office space, macroeconomic factors such as government policies, automation and AI have started significantly disrupting the Indian CRE market. CRE heads are increasingly focused on workspace efficiency and cost-effectiveness while keeping flexibility, collaboration, adaptive designs and employee retention in mind.

Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India, said: “Supported by a firm economy, we expect the office market to remain robust over the next three years, reflecting strong employment growth and economic reforms. However, we do not expect the absorption level to grow further since despite strong demand other factors such as the quest for workspace efficiency and the possible start of adoption of disruptive technologies such as blockchain and artificial intelligence (AI) may hold down overall absorption volumes.”

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