Annual office leasing has fallen for the second consecutive year to 30.5 million sq ft, according to data released by property consulting firm Cushman & Wakefield. Last year the total absorption stood at 33 million sq ft, and the year before at 34 million sq ft. On a year-on-year basis, net absorption declined by 7% in 2017.
The biggest decline in net absorption was recorded in Bengaluru, which witnessed a decline of 30% y-o-y, mainly on the back of low supply. Supply in Bengaluru during the year declined by 45%. However, it continued to be the largest office market, recording over 8.6 million sq ft of net absorption in 2017.
Across the cities of Bengaluru, Chennai, Mumbai, Pune, Delhi-NCR, Kolkata, Ahmedabad and Hyderabad, upcoming supply declined by 11% from 36 million sq ft to 32 million sq ft during the year.
Mumbai and Pune bucked the trend, recording increases in net absorption of about 9% and 18%, respectively, in 2017. In Mumbai, this was mostly driven by continued growth in IT/ BPM uptake in the peripheral locations of Thane-Belapur Corridor and some significant front office deals by BFSI and consulting companies, the report said. Pune recorded a surge in activities in the last quarter with a few large deals concluded in the IT/BPM sector. It remained a strong competitor to Hyderabad with comparable rental values, the report added.
According to Anshul Jain, country head and managing director at Cushman & Wakefield, India, leasing improved in the second half of the year, after witnessing a slowdown at the start of the year, following global developments like the US elections in late 2016 and the Brexit outcome in March this year, which adversely impacted leasing by companies dependent on outsourcing business from the West. What could have also contributed heavily to the decline of the annual absorption is that over the last three years, average commercial deal sizes across cities have been heading south. It declined by 47% in Mumbai, from 30,294 lakh sq ft in 2014 to 16,052 lakh sq ft in 2017; Pune logged a 22% decline from 22,593 sq ft to 17,600 sq ft, over the same time frame. Likewise, in Delhi, the average plummeted 20% from 28,589 sq ft to 22,961 sq ft and in Chennai, the average deal size declined 25% from 29,693 sq ft to 22,217 sq ft.
The focus of companies is towards building more efficient work spaces so that more open offices are preferred instead of cabins, pointed out Navin Makhija, managing director at Wadhwa Developers, in Mumbai. “I would say it’s more a result of a cultural shift.”
Experts contend that steep rentals at a time when the business sentiment is moderate is driving much of these decisions. Restructuring of work spaces where seating arrangements are fully optimised can result in cost savings of 30-40%, said Gautam Saraf, MD (Mumbai), Cushman & Wakefield.