Pan-India office space vacancy lowest in 8 years

The pan-India office space vacancy in 2016 at 15 per cent was the lowest in eight years. The sharpest decline in pan-India office vacancy was seen between 2013 and 2016 when it went dowm from 18.5 per cent to 15 per cent.

“On the back of positive office space demand from sectors such as manufacturing, logistics, FMCG, consulting firms etc, the year (2016) saw a record low vacancy largely driven by IT cities such as Bengaluru, Pune and Hyderabad, each of them seeing vacancy in single digits,” said Ramesh Nair, CEO and Country Head, JLL India.

City-wise vacancies Vacancy in Bengaluru declined from 14.5 per cent in 2010 to 3.8 per cent in 2016, while in Chennai it came down from 32 per cent in 2010 to 11 per cent.

Hyderabad has also seen its vacancy reduce from 15.5 per cent in 2009 to 9 per cent in 2016. Similarly, in Pune, vacancy has reduced from 17 per cent in 2009 to 5.5 per cent today.

“The pan-India vacancy is forecast to increase marginally this year and remain range-bound until 2019,” said Nair.

As vacancy reduces across key cities, the supply of good quality assets continues to diminish. “Vacancy in higher quality assets is far lower than the average city-level vacancies. Assets poorer in quality or at inferior locations or strata-sold (in Delhi-NCR and Mumbai), have a much higher vacancy, except in the IT cities such as Bengaluru, Pune, Hyderabad and Chennai,” explained Nair.

Lower absorption The net absorption in 2018 is forecast to be lower than this (2017) year due to scarce supply, and this is likely to be acute in Chennai and Pune. Nair said, “Thanks to more investment in infrastructure, cities such as Pune, Hyderabad and Chennai are expected to drive office demand in 2017.”

As a result, rents, will grow in even in Grade-B buildings too and certain micro-markets. The pace of growth in rents will not be the same across cities and micro-markets as they may have run their course already. Due to RERA, REITs and demonetisation, more and more office assets are expected to start getting institutionalised and demand for strata-sales is set to decline, especially in Delhi-NCR and Mumbai.

According to Nair, While some developers with a portfolio mix of commercial and residential developments are focusing more on building commercial assets, a select few have reportedly moved their focus entirely towards the commercial asset class.

Certain other players in the real estate sector have been aggressively building up their commercial portfolios in the country in anticipation of REITs. India’s growing stock of grade-A commercial assets presents great opportunities for REITs.

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