Office space vacancy falls on higher demand, lower supply: CBRE

Nov 03, 2017




Source: ET Realty

According to CBRE, office space vacancy level that was at its peak in 2012 with 23% is now at 13% across top cities, mainly driven by demand from ITITeS and BFSI sectors. Annual absorption of office space also continues to be robust, led by a growing number of mid-sized and smaller transactions, with the segment clocking 18 million sq ft of absorption in the first half of 2017.

Another report by global property expert Cushman & Wakefield showed that Bengaluru led the pack, with a share of about 27% at 4.8 million sq ft. Hyderabad was second on the list at 3.2 million sq ft.

“Almost 30% of the total net absorption for YTD 2017 took place in the third quarter of the year and going by the previous years’ trends, another 30-35% is expected to be recorded in the last quarter of the year,“ said Anshul Jain, managing director, India, Cushman & Wakefield.

The Cushman & Wakefield study showed that supply for office space registered a drop of 38% in the top eight markets.

Almost all citi es, bar ring Kolkata, saw a decline in commercial office supply. Mumbai saw a 56% drop, while Pune and Chennai saw 51% and 47% declines, respectively.

According to a JLL study, Pune’s pre-commitment activity stood at 48%, which is almost half of the total supply expected during 2017. Bengaluru has already seen 39% of its total supply coming through 2017 pre-committed, while Mumbai and Delhi-NCR have also recorded pre-commitment levels of 33% and 22%, respectively.

The commercial real estate sector is also witnessing increased interest from global investors including Blackstone Group, Singapore’s sovereign fund GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority.

“There is risk aversion among institutional investors that are opting for yield property than buying vacant space. Many investors have migrated to commercial assets and want to invest only in well tenanted properties,“ said Rajeev Bairathi, head Capital Markets, Knight frank India.

Since 2016, foreign funds have mostly invested in commercial assets such as office space, and retail due to easy exit and lesser liquidity risks, and the benefits associated with the creation of public markets in the form of REITs  (Real Estate Investments Trusts). However, local institutions have largely allocated capital towards residential projects and would continue to remain cautious, with a majority of them waiting out for the current consolidation cycle being driven by both the market and regulatory forces.

According to Knight Frank, the share of private equity investments into residential projects nearly halved from 50% in 2011 to 28% in 2016 and further dropped to 4% in 2017.