Net absorption of office space is expected to cross 100 million square feet (msf) by the end of 2020 in the top eight cities of India, according to estimates by JLL India.
Office space absorption is expected to grow at approximately a CAGR of 8 percent over 2017. The office space market has been experiencing robust demand trends which will be fructified in the next 2 -3 years keeping the office leasing activities buoyant and in an upward movement.
The estimated net absorption for office space in various cities for 2018 will be strong with Bengaluru expecting approximately 7 to 9 msf of net absorption leading the volumes. Mumbai is expected to witness between 6 and 7 msf of net leasing activities in 2018. While Chennai, Hyderabad and Pune will remain in the range of 4-5 msf each in this year, Kolkata could see anywhere between 1 and 2 msf of office space absorption in 2018, it says.
On the supply side, the estimated supply for the next 3 years is 116 msf which would also grow at a CAGR of 15 percent from 2017 to 2020. This year is expected to see a total supply of 36 msf adding over 33 percent msf over 2017. Post that, supply will see a moderate growth rate of 7 percent year-on-year. The surge in supply in 2018 will be the catalytic push to demand for Grade A office space.
The year 2017 saw a significant decline in supply leading to pent up demand which once new supply comes into the market will get absorbed maintaining the vacancy rates between 12 per cent to 14 per cent on an average.
The net absorption for 2018 is expected to be at 30.2 msf to record a positive growth over 2017. Though the percentage increase will be moderate at about 5%, it will be significant as net absorption had been witnessing year –on – year decline between the periods of 2015 – 2017 dropping below the psychological barriers.
The next two years will see healthy increase in net absorption of Grade A office spaces at average of 10% year – on – year giving the office absorption market a stable momentum.
“The office space absorption growth is directly dependent and indicative of economic factors like the growth in GDP, access to institutional capital and stability in the market. India is on a steady rise on global charts as a business location. Demand is expected to come both from domestic as well as global companies in India. Our estimates of growth sectors impacting the office absorption for the next three years are IT/ITeS, e-Commerce and related businesses, BFSI and FinTech companies and business consulting and services firms,” said Ramesh Nair, CEO & Country Head, JLL India.
“The supply and absorption trends have to be seen in overall context of the market where periodically one will outstrip another to maintain a stability. The expected growth of the economy in stable manner will allow the realty market to follow a sustainable trend. A stable trend which is supported by internal factors of the economy will help in strengthening the construction sector as well which in turn feeds back to the economy,” he said.moneycontrol