Bengaluru, Hyderabad and Chennai lead with 30 mn sqft office space absorption in 2019: Colliers International

Bengaluru, Hyderabad and Chennai saw a 23 per cent rise in demand for office space in 2019 as compared with last year, with gross absorption at 30.6 million square feet.

This strong growth demand is led by expansionary activity in the technology and IT-BPM space, ramp-up by flexible workspace players and investments of companies in global capability centers.

“As per our expectations, a sustained leasing momentum, coupled with continued demand from technology and flexible workspace operators once again helped Bengaluru secure the number one position in terms of overall leasing in 2019. Over the last few years, Hyderabad has seen unprecedented growth in commercial leasing activities owing to infrastructural push from the government, strong demand and attractive rentals. The city has been a major location for global investors who are scouting for ready stock with high yield rates,” said Arpit Mehrotra, Senior Director, Office Services (Bengaluru & Hyderabad) at Colliers International India.

Bengaluru continued to be the market leader with gross absorption of about 15 million square feet in 2019, an increase of 6 per cent from 2018. Technology and IT-BPM sector accounted for 39 per cent of the total leasing during the year, followed by the engineering and manufacturing segment’s share at 16 per cent and the flexible workspace share at 15 per cent. During the year, Bengaluru saw supply infusion of 10.9 million feet.

Hyderabad market

Hyderabad witnessed 9.5 million square feet of gross absorption during 2019 registering a 38 per cent y-o-y growth in office space demand when compared to 2018. This new peak in office demand is driven by technology and flexible workspace players accounting for 51 per cent and 32 per cent respectively, during 2019.

Interestingly, the flexible workspace players have ramped-up operations in the city with almost a four-fold increase in leasing activity during 2019 compared to previous year.

“The year (2019) has ended on a high note with Chennai and Hyderabad hitting an all-time high. Vacancies in the south cities hovering in single digits, signalling strong occupier sentiments. Overall, this year should see demand of about 52 million square feet, again a new high, as occupiers continue to remain enthused about India. We expect technology companies to continue their strong streak in 2020, with flexible workspaces slowing their expansion phase,” said Megha Maan, Senior Associate Director, Research, Colliers International India.

Chennai market

Chennai’s office space absorption rose by 56 per cent y-o-y during 2019, touching 6.1 million square feet. In the year 2019, the city witnessed a new peak in office space absorption after a down trend since 2012. Majority demand was led by the IT-BPM sector accounting for 55 per cent share in gross absorption number. This is followed by flexible workspace players with about 1.0 million sq feet, accounting for 15 per cent of the overall gross absorption.

“Office space absorption touched new heights and with overall city vacancy at sub 10 per cent rates, 2019 has been a landmark year for the asset class. Continuing demand for expansion in the city, increased number of large size (100,000 square feet) transactions and robust leasing contributed by the peripheral markets (Ambattur and post toll OMR) were some of the key factors contributing to about 6 million square feet of gross absorption. IT SEZs, as anticipated saw robust leasing across all micromarkets and was also instrumental in pushing leasing activity to close the year at a record high,” said Shaju Thomas, Senior Director, Office Services (Chennai) at Colliers International India.