With the Indian economy projected to grow at 7% over the next three years and recovering from the adverse repercussions of demonetisation and implementation of GST), the commercial real estate market is likely to remain robust in 2017.
With the Indian economy projected to grow at 7% over the next three years and recovering from the adverse repercussions of demonetisation and implementation of Goods and Services Tax (GST), the commercial real estate (CRE) market is likely to remain robust in 2017. The year 2017 witnessed a pan-India leasing volume of ~42.8 million sq ft (3.9 million sq m), excluding renewals and pre-commitments, which is marginally up from the absorption level of 2016 (~41.6 million sq ft in 2016). According to Colliers Research, Bengaluru grabbed the lion’s share at 36% of the overall office demand and remained the frontrunner in office leasing with record-breaking leasing of above 15 million sq ft (1.4 million sq m), followed by NCR (18%), Hyderabad (13%), Mumbai (12%), Chennai (11%) , Pune (8%) and Kolkata (2%).
The real estate market is likely to be dominated by the following 3 trends in 2018:
1. Flexibility to remain key focus in work space strategies: One of the biggest shifts in workplace strategies in India is likely to be the improvement in the degree of flexibility offered to occupiers by developers. Global leaders in flexible office space, including WeWork and Regus, have led the charge in the co-working space and leased a substantial office space in 2017. Developers such as DLF, Vatika, Supertech and Ascendas are also exploring this new emerging work. “The flexible office space will continue to flourish in the coming years, further given its convenience and cost-effectiveness. As per Colliers Research, in the last two years (2016 and 2017) flexible office operators leased more than 4.6 million sq ft (0.4 million sq m) and co-working operators will lease about 8 to 9 million sq ft (0.7-0.8 million sq metres) by 2020,” says Sanjay Chatrath, Executive Director, NCR, Colliers International.
2. Pre-commitments and BTS to remain popular: Given the single- digit vacancy rates in the main Information Technology and Information Technology Enabled Services (IT-ITeS) locations such as Bengaluru, Hyderabad, Pune and Chennai, occupiers continued to prefer built to suit and pre-commit large office spaces in 2017. “Even in the high-vacancy markets such as Gurugram we witnessed the trend of pre-commitments picking up. Several large occupiers whose leases are coming up for expiry are looking to consolidate in newer locations to hedge against the increase in rents. In 2017, the preferred locations witnessed rental growth of 10-15% in most cities; the average rents increased by 3-4% in technology driven cities while traditional cities such as Delhi, Mumbai and Kolkata witnessed 1-2% decrease in rents,” says Chatrath.
3. Occupiers to explore Tier-II & III cities for back-office requirements: Many technology and e-commerce companies are exploring expansion in Tier II and III Indian cities. The companies are exploring these cities in search of cheaper resources as Tier I cities are increasingly becoming expensive and subsequently the manpower cost is also increasing. Given the government’s push for smart cities development, the firms should consider expanding in the cities where the state governments intend to spur growth by offering more fiscal and non-fiscal incentives and building crucial infrastructure projects such as airports and railways.