9.6 mn sq ft Grade A office space absorbed in Q3; southern cities dominate absorption pie

Mumbai: Nearly 9.6 million sq ft Grade A office space was absorbed during the July-September quarter of this year, a report said.

According to a study of nine major metros by property consultant Colliers International, office absorption witnessed sustained momentum, with Grade A absorption totalling 9.6 million sq ft, making it 28.26 million sq ft so far in 2016.

"Although Q3 2016 marked a quarter-on-quarter decrease of 7.6 percent in gross leasing volume, we expect leasing activity to pick up in the upcoming quarters," it added.

As per the survey, southern cities dominated the office absorption pie with Bengaluru at the top (25 percent), Hyderabad (20 percent) and Chennai (11 percent), followed by Gurugram (13 percent), Mumbai and Noida (10 percent), Pune (8 percent), Delhi (2 percent) and Kolkata (1 percent).

"Vacancies are set to decline in prime commercial corridors on the back of rising demand momentum, especially in Bengaluru, Pune and Hyderabad," Colliers International's South Asia Director, Office and Integrated Services George McKay said.

He noted Bengaluru continues to go from strength to strength in terms of office absorption.

"This is good news for owners and developers, but is a challenge for office occupiers in many cases, as they face the prospect of higher rental rates and fewer options to choose from ? at least in terms of ready supply.

"Land markets in the main cities have become quite active as established and next generation developers are looking to replenish their land banks, to satisfy both existing and new client demand," he said.

As per Colliers, the growing office demand will outstrip supply in technology sector driven markets such as Pune, Bengaluru, and Hyderabad.

"This should therefore lead to downward pressure on vacancies and an upward pressure on gross office rents in these markets. In contrast, traditional commercial markets such as Mumbai and NCR are likely to remain stable in terms of rents and vacancy due to a stable demand and supply scenario," McKay said.

According to Surabhi Arora, Senior Associate Director, Research at Colliers International, the improving economic picture provides a favourable background for continued expansion in commercial property markets.

"Nasscom predicted 10-12 percent annual growth in IT and technology enabled services until 2020 that should help the office market to remain strong in 2017.?

"That said, a further impetus to growth should be provided by other macro-economic factors such as declining oil prices and increasing monetary easing facilitated by ongoing moderation in inflation," she added.