Pune realty bytes: Flexible space operators dominated space take-up in Q3 2019

Pune, October 17, 2019: CBRE South Asia Pvt Ltd, India’s leading real estate consulting firm, today announced the findings of its latest India Office MarketView – Q3 2019 report. The city witnessed a quarterly decrease in leasing activity, supply additions in SBD Kharadi, SBD East and SBD West and a quarterly increase in rental values in CBD.

Supply addition almost doubled on a quarterly basis as three new buildings became operational. These included two medium-sized IT developments in SBD East and SBD West along with a large-sized SEZ development in SBD Kharadi.

Flexible space operators dominated space take-up, closely followed by tech and research, consulting & analytics firms. Small- to medium-sized transactions (less than 50,000 sq. ft.) mainly drove the leasing activity. The city also witnessed the closure of a few large-sized deals (greater than 100,000 sq.ft) in IT developments.

Commenting on the findings of the report, Ram Chandnani, Managing Director, Advisory & Transaction Services, India, CBRE South Asia Pvt. Ltd. said: “Leasing activity was primarily driven by the culmination of pre-commitments in the newly completed developments in SBD East, SBD Kharadi and SBD West. Transaction activity was mainly concentrated in IT developments in SBD East and SEZ developments in SBD Kharadi. We expect that pre-leases in upcoming developments would occur in the coming quarters.”

Anuj Dhody, Associate Executive Director, Advisory & Transaction Services, India, CBRE South Asia Pvt., Ltd. said, “Limited availability of space across preferred non-IT developments led to an increase in rental values by about 1-3% on a quarterly basis in CBD.”

Leasing activity in the country rose by more than 30% annually, crossing 47 million sq. ft. during the first three quarters of 2019 (2019 YTD). Bangalore, followed by Hyderabad, NCR and Mumbai, accounted for about 80% of the leasing during 2019 YTD. Leasing activity stood at about 15.4 million sq. ft. during Q3 2019, rising by nearly 23% on an annual basis.

Outlook

With office leasing activity scaling a historic high, space take-up is likely to pick up in the short term but will stabilize in the medium to long term. The gap between Bangalore and Hyderabad is anticipated to reduce, as Hyderabad’s growth will be driven by robust supply completions and demand led by pre-leased completions.

India’s position as a preferred outsourcing destination will continue to attract corporates from EMEA, the Americas and APAC. While tech corporates will continue to dominate space take-up; BFSI, engineering & manufacturing and research, consulting & analytics will account for a larger share in leasing on a yearly basis.

Flexible space operators are expected to continue expanding operations, resulting in their share in overall leasing remaining high by end-2019. They are anticipated to target secondary markets in tier I cities along with major micro-markets tier II and tier III cities.

Rental growth expected to continue

As in the previous year, rental growth is expected to taper in Bangalore, Chennai and Pune. Bangalore is likely to witness a marginal rental growth due to sustained absorption in quality developments. As the much-awaited supply continues to be released in Chennai and Pune, residual spaces along with higher quality of new space is likely to drive rental growth in the short to medium term.

In Hyderabad, even with rising absorption, the quantum of supply lined up for release is likely to limit rental growth in the medium term; over the short term, the supply-demand mismatch is likely to support rental growth. Strong demand for space in quality developments and planned infrastructure upgrade is likely to fuel marginal rental growth in the core locations of NCR and Mumbai in the short term. SEZ and non-SEZ rental values are likely to converge within the same micro-markets across cities. Overall, rentals are likely to remain firm with an upward bias in active locations.