Expansion drive of e-commerce companies has beaten the banking, financial services and insurance (BFSI) industry and emerged as the second largest occupier for offices in India for the first time, in the April-June quarter.
In its report, “India Office Market View,” global real estate consulting firm CBRE said that with online retail firms like Amazon, Flipkart and Snapdeal committing large spaces, particularly in the national capital region (NCR) region and Bengaluru, the e-commerce sector consumed 17% fresh lease in the quarter, followed by BFSI at 16%. Apart from Flipkart, Amazon and Snapdeal, companies like Ola, Zomato and Makemytrip also contributed to the total leasing by e-commerce companies.
Whether the trend continues in the future remains to be seen. Experts say it’s not as if the BFSI sector has pulled brakes on expansion plans; the sector has been maintaining its sluggish absorption rate of 10%-20%, depending upon the market, rather the e-commerce industry has undertaken massive expansion plans, which is now tranlating to office absorption numbers.
“E-commerce companies can be a serious contender to banks and financial institutions, provided there will be availibility of capital. As long as venture capital funds and investors keep pumping money into the sector, we see continuous growth plans, which will further fuel absorption rates,” said Rajat Gupta, head of transactions (north), CBRE India.
The demand from e-commerce companies are mainly for back-end offices, which house functions such as software development, logistics management, mainly in Bengaluru and Gurgaon. “In these markets, e-commerce players are willing to shell out anywhere between Rs 45-50 per sq ft of rental for fitted-out properties. In some cases, they are even signing deals at values between Rs 80 and Rs 100 per square foot,” Gupta added. FE has learnt that some companies like Bengaluru-based Embassy Developers, which has signed tenant agreements with Flipkart, are signing long-term leases, with a three year lock-in period.
While the e-commerce industry’s absorption has been notable, the IT and ITES sectors remain the largest occupier of office spaces across the seven leading cities, with a 36% share in absorption. Not surprisingly, Bangalore led the pack when it came to both maximum transactions (28%) and maximum absorption (35%). A total of 8 million sq ft space was leased in the quarter. While this was a 70% jump compared with the previous quarter, absorption for the January to June period stood at 13 million sq ft, a decline of 12% compared with the first six months of 2014.
Bangalore, NCR and Mumbai accounted for 53% of the total absorption. On a quarterly comparison, all cities registered healthy absorption levels barring Pune, which saw a dip in absorption. Interestingly, the report noted that a majority of transactions took place for office sizes below 30,000 sq ft.
About 61% deals were signed in this segment, indicating that companies are by and large in a consolidation mode; 12% deals were signed for offices upto 50,000 sq ft. High value transactions remained few and far in between. The report said that 9% deals were for large spaces (above 90,000 sq. ft) and were signed by companies like Home Credit India, Accenture, Epilson and Oracle.