Showing faith in India’s economic growth, corporate occupiers have been in an expansion mode. Companies, especially in e-commerce, telecom and healthcare sectors, have been snapping up office space across major cities. This expansion is also reflected by the decline in office vacancy levels across the country — a trend which started in 2013. By 2015-end, cities such as Pune, Bengaluru, Hyderabad and Chennai had a vacancy rate of just 5-12 per cent.
Vacancy in Bengaluru has reduced from 16 per cent in 2011 to 4 per cent today. Chennai’s vacancy has come down from 32 per cent in 2010 to 12.5 per cent today. Hyderabad has also seen its vacancy reduce from 17 per cent in 2009 to less than 10 per cent now. Similarly, in Pune, vacancy has reduced from 18 per cent in previous years to 5 per cent today. The sharpest fall in pan-India vacancy is expected between 2016 and 2017 when it will be slightly less than 13 per cent.
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India’s office space absorption in 2015, at around 36 million sq ft, was the second highest after 2011. Leading this bull-run were cities like Bengaluru, Hyderabad, Pune, Chennai. While the absorption in 2015 was similar to 2011, it was distributed across new and old buildings this time unlike 2011 when it was largely limited to newly-completed buildings.
Also, while the demand in 2011 was due to lower rentals after the global financial crisis; in 2015, it was largely thanks to implementation of growth plans by corporates. Interestingly, in 2014, demand had surpassed supply for the first time since 2007. Moreover, the demand forecast looks strong in the medium-term.
All this is prompting developers to build fresh supply across cities, in order to meet growing demand. Developers, who had been shying away from commercial projects after burning their fingers between 2009 and 2012 owing to a lack of understanding of the commercial asset class and lack of funding, are returning to the market. As demand continues to pick up, occupiers will start taking up spaces in less ideal locations. Grade-B buildings in good areas are also likely to witness a rise in absorption rates.