1. Net office space absorption to be lower in 2018, says Jones Lang LaSalle survey

Net office space absorption to be lower in 2018, says Jones Lang LaSalle survey

Owing to a decline in supply of good quality office space, the net absorption in 2018 is likely to be much lower as compared to 2017 and 2016, a recent survey by Jones Lang LaSalle said.

By: | Mumbai | Updated: April 10, 2017 8:51 PM

Pan-India office vacancy in 2016, at 15 per cent, was the lowest in eight years. (Reuters)Owing to a decline in supply of good quality office space, the net absorption in 2018 is likely to be much lower as compared to 2017 and 2016, a recent survey by Jones Lang LaSalle said. Pan-India office vacancy in 2016, at 15 per cent, was the lowest in eight years, which was mainly on the back of positive office space demand from sectors like manufacturing, logistics, FMCG, consulting firms, among others, the property consultant said in a statement. 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 net absorption in 2018 is forecast to be lower than this year due to scarce supply,” JLL India CEO and Country Head Ramesh Nair said.

He said though the country’s office real estate is set to be the biggest gainer among asset classes due to steady demand, rising GDP and launching of REITs in the next 1-2 quarters, the availability of right space at right location remains a challenge for many occupiers looking for grade-A offices.

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“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, have a much higher vacancy, except in the IT cities like Bengaluru, Pune, Hyderabad and Chennai,” Nair said.

According to JLL, due to scarcity in supply of office space, rents, will grow 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.

“Due to RERA, REITs and demonetisation, more and more office assets are expected to start getting institutionalized and demand for strata-sales is set to decline, especially in Delhi-NCR and Mumbai,” he said.

According to JLL, due to more investment in infrastructure, cities such as Pune, Hyderabad and Chennai are expected to drive office demand in 2017.

Nair further noted while some developers with a portfolio mix of commercial and residential developments are focussing 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,” he added.

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