Green shoots visible, but take-up of large office space sluggish in January-March

Written by Shubhra Tandon | Mumbai | Updated: May 13 2014, 11:18am hrs
There was a slight improvement in take-up of large office spaces in Mumbai during the first three months of 2014. During the January-March period, Dutch multinational commodity trading company Trafigura Beheer is understood to have picked up 1.20-lakh-sq-ft space in One Indiabulls Centre in Lower Parel, in central Mumbai. The current monthly rent in One Indiabulls ranges between R180 and R200 per sq ft, say industry sources.

In another transaction, pharmaceutical major Sun Pharmaceutical is looking to purchase Standard Chartered Tower in Mumbai, which has a total built-up space of around 2 lakh sq ft, for R12,500-12,700 per sq ft, putting the deal around R280 crore.

However, despite this spurt, the activity in large office space take up continued to remain sluggish in Mumbai during January-March 2014. The take-up of such spaces has fallen by nearly 52% year-on-year, but sequentially it has more than doubled to 3.20 lakh sq ft in the financial capital. In the same period last year, there were four large lease deals recorded with a total absorption of 6.64 lakh sq ft.

In Q1 2014, occupiers in Mumbai remained cautious due to uncertain conditions arising from the upcoming general election. As a result, the overall take-up of office space also declined by 4% to 1 million sq ft compared to 1.05 million sq ft in Q4 2013, DTZ data show.

The Delhi NCR market also saw a subdued take-up of large office spaces during January-March 2014, after seeing some heavy leasing activity in the previous quarter (12.19 lakh sq ft). There were four large lease deals recorded, seeing a sequential drop of nearly 64% to 4.4 lakh sq ft in the first three months of 2014. However, on a year-on-year basis, the market more or less held on to its position, and saw an increase of 25% in take up compared to January-March 2013.

The deals include Convergys picking up 1 lakh sq ft in Unitech Cyber Park in Gurgaon, NEC picking up one lakh sq ft in Unitech SEZ, Noida, Accenture leasing 1.2 lakh sq ft in Unitech Infospace Tower 6, Gurgaon, and Copal Partners leasing 1.2 lakh sq ft in Udyog Vihar, Gurgaon.

"... a strong indicator of the recovery has already taken shape in the form of rise in the commercial vehicles sector, which is an indication that manufacturing and mining are spurring the demand. The trickle-down effect of such developments will only be seen on a 12-18 months horizon in the commercial real estate," Rohit Kumar, head of India research, DTZ, said.

However, some green shoots are already visible. The overall activity in the office real estate for eight cities in India is showing a steady increase. The first quarter of 2014 is estimated to have seen a total net office space absorption of 5.9 million sq ft, 58% higher than same time last year, latest quarterly office market report of Cushman and Wakefield shows.

The steady upward momentum in the first quarter absorption compared with the corresponding periods is a positive sign. While some of the transactions are spillovers from the last quarter as deals could not be completed in time for the year-ending, there are also significant closures ahead of the general and some state elections next quarter, Sanjay Dutt, executive managing director, (South Asia), Cushman & Wakefield, said.

Rental values appreciated marginally in certain peripheral and suburban micro-markets during January-March 2014. However, in Mumbai, feeble demand levels and existing vacancy pressures continued to have a negative impact on rentals across markets. Average rents were down 4.2% and 13.2% on q-o-q and y-o-y, respectively, to R230 per sq ft per month in Nariman Point, while in BKC, they have fallen 3.7% q-o-q and 7.1% and y-o-y.