In stark contrast to the ailing residential sector, India’s office real estate sector defied the overall economic slowdown in calendar year (CY) 2019.
According to Anarock Property Consultants Pvt. Ltd, office supply in CY2019 is likely to rise 13% from a year ago, touching 43.3 million sq. ft. Further, demand is likely to increase by 11% year-on-year to 37.1 million sq. ft in 2019. In other words, vacancy rates are expected to drop to 14.3% in 2019 from 14.6% in 2018.
The commercial realty market buoyancy coincides with the fact that India jumped 14 spots to the 63rd position in World Bank’s ‘Ease of Doing Business 2020’ report, reflecting the confidence of both local and global entities.
“With Indian Grade A office space demand being driven largely by MNCs for their captive centres and domestic IT companies, we expect net absorption levels across India’s Tier I cities to sustain leasing momentum along with rental appreciation over the medium term,” Adhidev Chattopadhyay, an analyst at ICICI Securities Ltd, said in a report.
This is in spite of the WeWork debacle where India’s co-working boom came under investor scrutiny on profitability parameters in tech startups.
A region-wise analysis shows Bengaluru and Hyderabad in good light. In most vibrant markets, the absorption level is high. Kolkata and non-central business districts of Gurugram suffer from a glut, with the vacant office space expected to take at least 24-36 months to absorb.
However, as the chart shows, overall vacancy level in office property has been falling. On the contrary, the residential sector is saddled with high inventory levels.
“We expect net absorption levels across India’s Tier I cities to sustain leasing momentum along with rental appreciation over the medium term,” Chattopadhyay said in the report.
Further, with consolidation in the sector over the last decade and the presence of seven to eight large office asset developers means competition is limited. Against this backdrop, the trend of high absorption in relation to supply may well continue in the coming quarters.