Ground realty: Small cities lap up office space

Written by Shubhra Tandon | Mumbai | Updated: Oct 5 2014, 08:41am hrs
Office spaceWith high rentals, Mumbai and Delhi are losing out on demand for office space, while cities like Bangalore, Hyderabad, Kolkata and Pune are gaining currency.
With high rentals, Mumbai and Delhi are losing out on demand for office space, while cities like Bangalore, Hyderabad, Kolkata and Pune are gaining currency. Looking for large spaces, e-commerce, telecom and IT/ITeS firms are preferring to set up base in cities that can offer both space as well as lower rentals.

Over the past year or so, Accenture, SAP and Morgan Stanley have leased out between 1-2 lakh square feet (sq ft) spaces each in Bangalore. Pune, of late, has seen some good traction in commercial and office space leasing. According to Jones Lang LaSalle India, Pune saw approximately 4.7 million sq ft of Grade A office space leased in 2013, garnering a share of 17.4% in the total commercial/office space leasing in India.

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Earlier this year, US-based supply chain solutions company Flextronics leased 1.08 lakh sq ft space in the city, which has become home to a number of multi-nationals like Barclays, AXA, Calsoft and HSBC, to name a few.

Capgemini, Symantec Space, UHG, Karvy are some companies that have leased large office spaces in Hyderabad, while British Telecom and Jacobs Engineering leased 50,000 sq ft space each in Kolkata recently.

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Among big names back home, Reliance Jio is understood to have picked up a total of 1.15 lakh square feet space between two offices in Kolkatas upcoming business district of Rajarhat and Salt Lake Sector V area.

Home-grown e-commerce firms Flipkart, Snapdeal and Jabong are all said to be looking for large commercial/office spaces. Flipkart is said to be looking to lease one million square feet space in Bangalore. The company reportedly plans to lease 3-4 lakh sq ft in the first year and the balance over the next two to three years. The industry is estimating that requirement of the other two companies is also likely to be in the range of 0.5 to one million sq ft.

Said Anshuman Magazine, chairman and managing director, CBRE South Asia, Rejuvenating the manufacturing and services sectors is expected to help resuscitate demand for corporate office space in the forthcoming quarters.

Bangalore, the IT hub of the country, has seen 16 transactions in the one lakh sq.ft and above category in the first six months of 2014, leasing out a total of 36.9 lakh square feet office space. Hyderabad has seen five deals with 7.47 lakh square feet leased out in the first half of the year, data sourced from global property consultant DTZ reveals.

E-commerce is taking

a large share of the office pie as companies foresee rapid growth in their businesses in the next few years, says Satish BN, executive director (south), Knight Frank India.

Apart from the positive sentiment that is riding high on India Inc post a stable government at the Centre, infrastructure development in terms of metros, roads and ports is expected to prove a shot in the arm for commercial leasing activity, especially in cities that have not seen much growth in commercial space off-take like Kolkata and Hyderabad.

Demand for office space in Kolkata is slowly picking up post June. High quality education institutes and healthcare facilities, along with educated skilled labour, port, road and air connectivity, is driving demand in citys commercial real estate, says Surekha Bihani, transactions head (Kolkata), Jones Lang LaSalle India. The IT/ITeS segment is likely to remain the major contributor to Kolkatas overall office space absorption, while significant supply addition is expected in the peripheral locations of Rajarhat and Salt Lake by end-2014, CBRE notes in a July 2014 report.

As for Hyderabad, IT corridors of Gachobowli and Madhapur are seeing an increase in leasing activity post the resolution of the Telangana issue, says Satish of Knight Frank.

Moreover, the rents when compared to Mumbai or Delhi are low in other Indian cities, which aids in cost control. In Mumbai and Delhi, too, it is the peripheral business districts in the suburbs that are seeing absorption in office space due to competitive rentals.

Ravi Ahuja, executive director, Cushman and Wakefield India, says: Sectors like e-commerce operate on a high volume less margin model, so rents play an important role in their costs. Ahuja says these companies do not require fancy front offices, but instead large warehousing spaces and efficient supply chain networks, so they are looking for locations that do

not command high rents, but can provide with good call quality and broadband networks.