Vacancy rates in office buildings stood at a high of 15.3% at the end of December 2016, with nearly a third of this in micro markets such as Delhi-NCR (National Capital Region) a JLL, India report estimated. Although in percentage terms the all India vacancy would appear to have come down from the 16.5% levels a year ago, in certain markets there is a clear case of supply of office stock over exceeding the demand. Among the major markets, Bengaluru, traditionally the strongest market as far as office demand is concerned, recorded the lowest rate of 4% whereas the clear laggards were Kolkata, with more than 27% vacancies and Delhi – NCR, with over 30% vacancy rates. Whereas levels were low in Pune (5% vacancy) and Hyderabad (9% vacancy), they were far higher in Mumbai (18%) and even Chennai recorded 11% vacancy until the end of 2016.
“From these figures, it is clear that IT hubs continue to see a good supply-demand equilibrium compared to other markets in the country,” said Ramesh Nair, CEO and country head of JLL, India.
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Interestingly, vacancy levels in Bengaluru has reduced to its current levels from 16% back in 2011. Similarly, Chennai, Hyderabad and Pune have shown a steady lowering in the past five years. Still, given that some of the markets have vacancy levels as low as 4%, a 15% overall indicates a fragmented, lopsided market.
It’s worth noting that the rates differ in Grade A and superior Grade A asset quality, said Subash Bhola, associate director of REIS, JLL.
If only superior Grade A buildings are considered, which means higher quality, world class amenities and prime location, the all India vacancy rate drops by more than half to 6%. Corroborating his view, Navin Makhija, managing director of the Wadhwa Group, which owns an office block in BKC said that there is less than 2% vacancy in the business district of BKC, one of the most sought after corporate address today.
But companies are moving from areas such as Norman Point; the Lower Parel belt too could be inching towards high vacancy due to an oversupply, Makhija explained.
Indeed, with most tenants preferring locations like BKC and Lower Parel, the premium office buildings in Nariman Point have seen a massive churn. The micro market, once the top preference of multi national corporate conglomerates is now flooded by offices of chartered accountants, lawyers, exporters, liasioning and some consultancy firms.
Large corporates have made their preference clear, it’s BKC. Some have ditched old school, charming office compounds in Churchgate and Fort and opted for modern, swanky new complexes along the western express highway. On the last count, premium buildings in Nariman Point, Maker Chambers III and Maker Chambers VI, for instance had vacancy levels of around 15%-20%.
“It takes far lesser time for people to reach the western suburbs than commute to south,” opined Makhija.
Similar to Mumbai, Delhi-NCR too is divided between buildings that are vacant and ones for which occupiers are waiting in queue. “In DLF Cybercity and adjoining buildings, vacancy rates are less than 5% and in fact companies are waiting to occupy space but there are pockets in Noida and Greater Noida where buildings are vacant,” said Samantak Das, national director of research at Knight Frank, India.
Das said the exuberance in the office off take is hardly widespread.