1. Office vacancy drops to 15 per cent in 2016, lowest in 8 years

Office vacancy drops to 15 per cent in 2016, lowest in 8 years

The sharpest reduction in pan-India office vacancy was seen between 2013 and 2016 when it went from 18.5 per cent to 15 per cent.

By: | Updated: April 10, 2017 3:22 PM
IT industry body, National Association of Software and Services Companies, NASSCOM, political uncertainties, indian economy, economy growth in India, CP Gurnani The sharpest reduction in pan-India office vacancy was seen between 2013 and 2016 when it went from 18.5 per cent to 15 per cent.

The year 2016 was a good year for country’s commercial real estate market with last year seeing lowest office vacancy at 15 per cent following positive office space demand from sectors like manufacturing, logistics, FMCG, a report by JLL India said. The report further added that the pan-India office vacancy is expected to increase marginally this year and remain rangebound until the year 2019. The net absorption in year 2018 will be lower than this year due to scarce supply, and this is likely to be acute in Chennai and Pune.

The sharpest reduction in pan-India office vacancy was seen between 2013 and 2016 when it went from 18.5 per cent to 15 per cent. The year 2016 saw a record low vacancy largely driven by IT cities such as Bengaluru, Pune and Hyderabad – each of which saw vacancy in single digits.  The office vacancy in Bengaluru reduced from 14.5 per cent in 2010 to 3.8 per cent in 2016, while Chennai’s vacancy came down from 32 per cent in 2010 to 11 per cent today. Hyderabad’s office vacancy reduced from 15.5 per cent in 2009 to 9 per cent in 2016. Similarly, in Pune, vacancy reduced from 17 per cent in 2009 to 5.5 per cent today. Pune, Hyderabad and Chennai are expected to drive office demand in 2017.

“Even as India’s office real estate is set to be the biggest gainer among asset classes – thanks to steady demand, rising GDP and launching of REITs in the next one or two quarters – availability of right space at right location remains a challenge for many occupiers looking for grade-A offices, especially the ones looking for superior grade-A office space. The latter have been facing a challenge in recent times due to the ongoing space crunch,” Ramesh Nair, CEO and Country Head, JLL India said.

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 like Bangalore, Pune, Hyderabad and Chennai.

The report also said that 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.

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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