In the latest estimate by JLL, India’s largest real estate services firm, Net Absorption of office space is expected to cross 100 million square feet (msf) by end of 2020 in the top eight cities of India. Office space absorption is expected to grow at approximately at a CAGR of 8% 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.
According to JLL India estimates, 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 a healthy increase in net absorption of Grade A office spaces at an average of 10% year – on – year giving the office absorption market a stable momentum.
Ramesh Nair, CEO & Country Head, JLL India said, “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.”
The estimated net absorption for office space in the various cities for 2018 would be strong with Bangalore expecting approximately 7 – 9 msf of net absorption leading the volumes. Mumbai expecting to see between 6 – 7 msf of net leasing activities in 2018. Chennai, Hyderabad and Pune will remain in the range of 4-5 msf each in this year. While Kolkata could see anywhere between 1 -2 msf of office space absorption in 2018.
On the supply side, the estimated supply for the next 3 years is 116 msf which would also grow at a CAGR of 15% from 2017 – 2020. This year of 2018 is expected to see a total supply of 36 msf adding over 33% msf over 2017. Post that, supply will see a moderate growth rate of 7% y-o-y. The surge in supply in 2018 will be the catalytic push to demand for Grade A office space. 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% – 14% on an average.
Ramesh Nair further added, “The supply and absorption trends have to be seen in the overall context of the market where periodically one will outstrip another to maintain a stability. The expected growth of the economy in a 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.”
A stability of vacancy indicates a stability of rentals in most locations as well, we expect rentals to grow between 5% – 8% year – on – year albeit only in high demand micro – markets of SBD and IT corridors of in key markets. The rest of the markets are expected to hold the fort to the current values.