Commercial real estate market in Kolkata is on the upswing with an increase in leasing or office space absorption in the last three to six months (October–March). Supply too has increased.

There is optimism in the market with an IT major having begun discussions for taking up a few lakh sq ft of office space around the northern fringes of the city. Moreover, expansion activities of a city-based bank and demand generated by the IT-Business Process Management (IT-BPM) segment are stated as the reasons for the optimism.

Increased supply

According to Soumendu Chatterjee, City Lead – Kolkata, Anarock Property Consultants, the total supply in the commercial space in Q1 2019 and Q4 2018 was approximately 0.6 million sq ft as against no new supply being added during the period in Q4 2017 and Q1 2018 (year-ago period). This indicates that new supply has increased over the year.

With regards to absorption or office space leasing activity, Anarock’s data suggest that Kolkata saw leasing of nearly 0.6 mn sq ft during the last two quarters (October-December and January-March) as against 0.35 mn sq ft of space being leased in Q4 2017 and Q1 2018.

Chatterjee further said the trends clearly indicate that while Kolkata’s supply and absorptions are gradually picking up, it is still slow as compared to other major cities and metros.

“The average monthly office rentals largely maintained status quo – rising merely from ₹49 per sq ft in 2017 to ₹50 per sq ft in 2018,” he told BusinessLine .

‘Good start’

Another real estate consultancy major, Cushman and Wakefield, in its March 2019 report said the Kolkata office market is “off to a good start in 2019”. The leasing activity in the city stood at around 0.36 million sq ft in Jan-March period this year and this was amongst the “highest first quarter leasing for the city in the last seven years.

The satellite township of Salt Lake – on the north-eastern fringes of Kolkata – constituted nearly 97 per cent of the leasing activity with two large transactions (of over 0.1 million sq ft ) coming from the region. The BFSI and professional services firms accounted for 49 and 31 per cent of the absorption.

“Rajarhat, which was largely sluggish during the quarter, is anticipating a significant transaction by an IT major in the upcoming quarter, which is expected to sustain the leasing momentum,” the consultant said in its report, adding that rents were largely unchanged from the previous quarter, as the market continues to remain favourable for occupiers with adequate availability of Grade A space.

“Overall rents are likely to remain stable in the upcoming quarters amidst space availabilities,” Cushman and Wakefield said in its report.

Sluggish trend

Market sources point out that despite the recent uptick, commercial real estate activity in the city continues to remain sluggish over a nine-year period. According to Swapan Dutta, Branch Director (Corporate), Knight Frank (India), Kolkata witnessed commercial real estate leasing activity to the tune of 1.5 million sq ft per year between 2010-12. In the subsequent three-year block, 2012-15, this average came down to 1 million sq ft per year. From 2016 to 2018, it came down further to 0.8-0.9 million sq ft. “Beginning Jan 2019, there has been some uptick. But, it has to be seen if the momentum continues,” Dutta said.

Sources said companies are still not taking up “big office spaces” that run into over 100,000 sq ft here in Kolkata. This has often led to slow absorption. Even if some of these MNCs take up space, they are looking at co-working spaces.

Retail front

On the retail front, there is no new mall supply expected to come up in Kolkata in 2019 while between 2021 and 2022, around. 2.4 million sq ft of new mall supply is likely to enter the market.

Trends suggest that vacancy levels of malls in key cities such as Kolkata has been rising year-on-year. From 12 per cent in 2016 to 13 per cent in 2017, it stood at 17 per cent in 2018. This is the second highest among the top 7 cities, Anarock said.

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