Office Absorption in Bangalore Drops 81% in Q1-2013

Published on April 09, 2013, 11:20 PM IST
office absorption shrinks in 2013
Office markets in India registered a downward trend in absorption according to the latest report by Global Real Estate consultants, Cushman & Wakefield.

The total net absorption across top eight cities was noted at 3.6 million square feet (msf) in the first quarter of 2013 which denoted a decline of 37% compared to the same quarter last year. Bangalore and Chennai saw a significant decline in net absorption levels followed by Mumbai and Hyderabad.

Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, said “Corporate are cautious, the economic slowdown in global markets continues to affect global markets. Added to this, are the domestic sentiments, which are affected by active political conundrum in the run up to the 2014 general elections. Further, the Union Budget for 2013-14 had very little for corporates on the whole, especially the IT/ITeS and BFSI sector, which has put many companies into watchful mode. However, second half of 2013 is expected to witness an increase in activity which is expected to match the activity levels of 2012.”

Slower economic growth led to a decline in expansion by companies as cautious sentiments continued through the quarter. Pune saw the highest net absorption of 842,000 sf followed by Mumbai and NCR that saw approximately 810,000 sf and 775,000 sf of net absorption during the quarter. Pre-commitments during the quarter were registered at approximately 515,000 sf restricted only to Mumbai and Pune.

IT/ BPO driven markets of Chennai and Hyderabad registered a decline in leasing activities in Q1 2013 over the same period last year due to the cautious approach. However, it was striking to note that Bangalore, which has traditionally contributed in large quantum to the total office space leasing, saw a decline of 83% in Q1 2013 over same time last year in the wake of lower quantum of space take-ups.

Companies, primarily from IT/ITeS sector, vacated office spaces in locations of CBD and Suburban regions to relocate and consolidate in peripheral areas due to availability of cost effective options. Vacancy rates at the end of Q1 2013 were noted at 19.6%, representing a rise of 3% from the same quarter last year. Highest net absorption was noted in Pune that also saw an exceptional increase of 30% compared to Q1 2012. However, fresh supply registered an increase of 18% y-o-y and was recorded at 7.9 msf.

“Companies that relocated, restricted space uptake to either the same size as they vacated or only marginally more than the last space occupied, thus contributing to net absorption in limited amount. Many corporate houses expressed interest in leasing larger space, but have postponed their decision for the later part of the year. Thus going forward, the transaction activities are expected to pick up with some bigger requirements anticipated to get finalized,” said Dutt.

The developers on the other hand are looking for different strategies to promote lease and sale in a highly competitive environment. Some of the focus areas are branded office developments, while some are going back to strata sale and smaller units to attract investors or small and medium companies.

Bangalore has witnessed the highest drop in office absorption which signals very weak demand in real estate sector.

City

Supply Q1-12

Supply Q1-13

% Change in Supply

Absorption Q1-12

Absorption Q1-13

% Change in Absorption

Vacancy Q1 2013

Bangalore

1.06

1.58

49%

1.35

0.23

-83%

14.70%

Chennai

0.95

0.37

-61%

0.65

0.13

-80%

15.90%

Mumbai

1.43

1.65

15%

1.29

0.81

-38%

20.10%

NCR

1.61

1.98

23%

0.77

0.77

0%

28.30%