2009 would be marked as a year in Indian real estate which witnessed one of the most difficult periods for the industry in recent times. However, despite the turbulence and uncertainty, there are momentous opportunities to learn through the turn. With signs in the global economy that the worst may be behind us, commercial office space in India has begun to consolidate, focusing on affordability, diversification and delivery.
- 2009 witnessed a considerably lower net absorption of 19.6 million sq ft against a robust net absorption of 33.1 million sq ft in 2008.
- Quarterly absorption rate was recorded at 17% in 4Q09, which has been increasing steadily after hitting bottom in 1Q09.
- Indian real estate witnessed net absorption of 8.0 million sq ft in 4Q09, nearly four times the lowest witnessed in 1Q09.
With lower rents in IT as well as non IT spaces, the opportunistic demand is led by domestic occupiers, who have expanded their real estate portfolios in various Indian cities. The sunshine sectors - telecom, pharmaceuticals, healthcare and manufacturing leased large spaces in various cities. A larger share of transactions happened in operational vacant stock rather than under construction projects in 2009, contrary to the trend observed during 2007 & 2008, when options in operational office space weren't available to the tenants in the same measure.
Projected Supply and Demand of Office Space
Projected Supply and Demand of Office Space
- 162.6 million sq ft of office space is expected to become operational in the next three years, which would increase the Pan-India grade-A office stock to 387.4 million sq ft.
- By end-2010, Mumbai is expected to lead in terms of operational office stock in the country, pushing the current leader, Bangalore, to the second position.
- About 85-90% of the near term supply of 68.3 million sq ft, which is expected to become operational in 2010, is under advanced stages of construction with more than 50% of the structure completed at end-2009.
The pace of supply infusion is expected to outgrow the demand in the medium term thus creating a condition of oversupply across the secondary and suburban micro-markets. Net absorption of office space is projected to grow at a CAGR of 29% during 2009-2012, increasing from 19.6 million sq ft registered in 2009 to 42.2 million sq ft in 2012. (Figure 3) While Mumbai and NCR-Delhi are expected to absorb about 20-22% of the projected demand during 2010-2012, Bangalore and Chennai are expected to absorb about 14-15% of the projected demand during the same period.
Despite a projected growth of 10% for IT/ITES & BPO sector in India during 2010, the translation of expansion strategies into demand for real estate space is only expected by end of 2010. During 2011-2012, with better growth projections of IT/ITES sector, demand for office space in these micromarkets is likely to increase.
Despite a projected growth of 10% for IT/ITES & BPO sector in India during 2010, the translation of expansion strategies into demand for real estate space is only expected by end of 2010. During 2011-2012, with better growth projections of IT/ITES sector, demand for office space in these micromarkets is likely to increase.
