2018 to witness stronger demand || 96501296972018 to witness stronger demand
The Indian economy recovered sharply with 7.2% YOY growth in Q4 2017, echoing a positive outlook. Most economic forecasters have maintained their projections of growth of above 7% over the next two years. In our opinion, the commercial real estate market is likely to remain robust with increased investor activity, sustained demand from technology companies and growing interest from various industry occupiers like manufacturing, flexible workspace, logistics and warehousing.
Forecast at a glance
Demand from technology and finance sectors should remain consistent; flexible workspaces should gain prominence across cities.
Nearly 117.0 million sq ft (10.9 million sq m) of Grade A office supply is scheduled for completion over 2018-2020; 46% of the upcoming supply is sited in multi-tenanted Special Economic Zones (SEZs).
Grade A vacancy rates in key micromarkets of Bangalore, Pune, Chennai likely to remain low at 6-9% over2018-2020
We expect 3-5% YOY increase in average rents over the next three years; Premium buildings in strategic locations should contribute to the bulk of these rent increases.
Active investments in commercial office market should support prices with a 2-3% YOY increase over 2018-2020.
Limited Grade A vacancy to drive flexible workspace demand
The first quarter of 2018 has started on a positive note with a 23% YOY increase in the gross office take-up in India. We recorded approximately 11.4 million sq ft (1.02 million sq m) of gross absorption in Q1 2018. Representing 34% of total leasing volume, Bengaluru (Bangalore) continued to account for the highest share of absorption followed by the National Capital Region (NCR) on 26%, Pune on 16%, Mumbai on 10%, Chennai on 9%, Hyderabad on 4% and Kolkata on 1%.
Thetechnology and finance sectors remained the major contributors to office demand across Indian cities with 36% and 17% shares respectively of the total office take-up in Q1 2018. In line with our earlier forecasts, demand from flexible workspace operators and the manufacturing sector has started gaining momentum in 2018, accounting for 13% and 12% respectively of pan-Indian leasing volume.
In our opinion, demand for flexible workspace shouldfurther increase over the coming years. For building owners targeting the smaller occupiers, this could mean more competition as occupiers may prefer these flexible, strategically located sites.
We also expect demand from manufacturing and logistics companies to grow in the coming years. The recent award of infrastructure status to the logistics sector that includes industrial parks, cold chains and warehousing facilities should boost private investments in these sectors.
Although more than 30.0 million sq ft (2.7 million sq m) of Grade A supply is scheduled for completion in 2018; in our opinion, developers should adhere to the planned timelines to maximise the benefit of the present supply crunch in technology-driven cities.Developers should gear up to build future-proof buildings with up-to-date amenities and maximum technology intervention to command premium rents. We advise large occupiers looking for state-of-the-art buildings with modern amenities and facilities for their employees to pre-commit in advance, especially in low vacancy markets such as Bengaluru, Pune and Hyderabad.