REALTY BYTES: LEASING ACTIVITY ROSE IN NCR DURING Q2, 2017: CBRE

Posted by: at 7/10/2017 02:00:00 am
REALTY BYTES: LEASING ACTIVITY ROSE IN NCR DURING Q2, 2017: CBRE


Gurgaon Dominated Office Leasing Activity in NCR During the Quarter

Space Take Up in India Crosses 10 mn sq.ft.; 28% Rise Over Q1, 2017

Delhi NCR, July 10, 2017: CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm, today announced the findings of its latest India Office MarketView Report – Q2, 2017. According to the report, leasing activity rose in Delhi NCR during the second quarter, with majority of space take-up recorded in Gurgaon. Due to sustained occupier interest, Golf Course Road and DLF Cybercity continued to be key office destinations during the quarter. IT and SEZ spaces were the preferred options by occupiers. The micro-markets of Noida and Delhi saw a growth in absorption during Q2, 2017.

Office space demand was mainly driven by engineering and manufacturing firms, followed by IT/ITeS, e -commerce firms, which took up several large-sized spaces (>100,000 sq. ft.) in prime developments in Gurgaon and Noida. Additionally, co-working operators also continued to expand in the region, actively leasing small to medium-sized spaces in both Gurgaon and Noida. Limited space availability coupled with sustained occupier interest resulted in rental values rising by about 3-6% q-o-q across Golf Course Road and Noida Expressway (SEZ).

Commenting on the findings of the report, Anshuman Magazine, Chairman – India & South-East Asia, CBRE said, “Despite a dip in our GDP numbers during the March 2017 quarter, India’s office market continued to witness sustained activity. With the implementation of several policy reforms underway, including GST and Real Estate Regulation and Development Act (RERA), the fundamentals for the country remain strong. Infrastructure development across major cities, growing prominence of smaller cities for corporates and overall positive sentiment are providing a further boost to the office market which has witnessed positive momentum over the past two years.”

Ram Chandnani, Managing Director – Advisory & Transaction Services, CBRE South Asia Pvt. Ltd. added, “India’s office market continues to perform well despite uncertainties among global corporates in the recent past. Occupiers continue to future proof their portfolios and hedge against future rental escalations by pre-leasing space across various cities.  Occupiers, while expanding their footprint across the country and implementing their expansion plans, are also expected to keep a strong check on space utilization ratios and innovations in workplace strategies. The use of ‘co-working spaces’ is expected to rise, with the concept being adopted not only by start-ups and individuals, but also by organizations with fluid expansion/occupation plans.”

Delhi Market Indicators – Q2 2017

Micro-market
Q-o-Q Highlights
Demand q-o-q
Supply
q-o-q
Rent
q-o-q
CBD
Small and medium-sized transactions were noted with stability in rental growth

Gurgaon
Leasing activity remained broadly steady, occupier focus continued to be towards core micro-markets.


Noida
Leasing activity mainly in primary spaces of quality developments completed in the recent quarters

According to the report, leasing activity for prime office space across key cities in India continues to remain strong with absorption crossing 10 million sq. ft. during the April – June 2017 period. This is a 28% increase over Q1 2017 and signals the continued growth of the segment. The implementation of policy initiatives like RERA are starting to have a positive impact on the overall real estate market in the country.

Sectors driving corporate leasing activity continued to be IT/ITeS, BFSI and Engineering & Manufacturing. Similar to earlier quarters, leasing activity was driven by small and medium-sized transactions (<50,000 sq. ft.) accounting for almost 90% of all transactions reported in Q2 2017. During the quarter, leasing activity was led primarily by Bangalore, NCR and Hyderabad. In fact, Hyderabad witnessed significant activity during the quarter, overtaking Mumbai in leasing activity. Another city that witnessed a rise in q-o-q space take-up was Kolkata. The share of US-based corporates in quarterly transaction activity increased from 44% in Q1, 2017 to 50% in Q2, 2017, while share of domestic corporates rose from 33% to 37% in Q2, 2017.

On the supply side, development completions more than doubled on a q-o-q basis during Q2 2017, with about 8.2 million sq. ft. of development completions reported during the quarter. Bangalore and Hyderabad accounted for more than 60% of the supply addition; followed by Pune and Mumbai.

According to the report, leasing activity for prime office space across key cities in India continues to remain strong with absorption crossing 10 million sq. ft. during the April – June 2017 period. This is a 28% increase over Q1 2017 and signals the continued growth of the segment. The implementation of policy initiatives like RERA are starting to have a positive impact on the overall real estate market in the country.


Sectors driving corporate leasing activity continued to be IT/ITeS, BFSI and Engineering & Manufacturing. Similar to earlier quarters, leasing activity was driven by small and medium-sized transactions (<50,000 sq. ft.) accounting for almost 90% of all transactions reported in Q2 2017. During the quarter, leasing activity was led primarily by Bangalore, NCR and Hyderabad. In fact, Hyderabad witnessed significant activity during the quarter, overtaking Mumbai in leasing activity. Another city that witnessed a rise in q-o-q space take-up was Kolkata. The share of US-based corporates in quarterly transaction activity increased from 44% in Q1, 2017 to 50% in Q2, 2017, while share of domestic corporates rose from 33% to 37% in Q2, 2017.

On the supply side, development completions more than doubled on a q-o-q basis during Q2 2017, with about 8.2 million sq. ft. of development completions reported during the quarter. Bangalore and Hyderabad accounted for more than 60% of the supply addition; followed by Pune and Mumbai.

Other City Highlights – Q2, 2017

Bangalore
Supply completions witnessed across several micro-markets driven by one large SEZ and several medium to large non SEZ developments
Leasing activity rose on a quarterly basis
Space take-up in the city was driven by IT/ITeS, BFSI and Engineering and Manufacturing firms
Limited space availability coupled with sustained occupier interest resulted in rental values rising by about 2-6% q-o-q across ORR, PBD, SBD and NBD (North Bangalore)

Hyderabad
Leasing activity remained strong; rose on a q-o-q basis, overtook Mumbai
Leasing was concentrated in the IT Corridor
New supply was in CBD and IT Corridor
Rental values continued to grow in IT and Extended IT Corridor

Chennai
Small to medium-sized deals continued to dominate leasing activity
Rental values remained stable across micro-markets
Supply addition rose marginally in the city on a quarterly basis
With limited new supply, 50% of deals were closed in secondary spaces
IT/ITeS corporates continued to lead demand, followed by BFSI and e-commerce firms

Mumbai
The city witnessed a marginal dip in leasing activity on a quarterly basis
Supply addition rose marginally with new projects released in PBD - Thane/Navi Mumbai and SBD - Andheri East
Occupiers from the BFSI sector were the biggest driver of space take-up, followed by infrastructure, real estate and logistics companies
Rental values continued to remain stable

Pune
Leasing activity declined on a quarterly basis; concentrated in CBD and SBD
Quarterly supply addition increased; witnessed in SBD and PBD
Sustained occupier demand and limited availability led to rental appreciation of approximately 4-8% in SBD and CBD

Kolkata
Leasing activity rose on quarterly basis, driven by the IT/ITeS segment followed by Engineering & Manufacturing
Negligible new supply entered the market during the quarter
Rentals remained stable during the period

Kochi
Leasing activity was driven by small-sized deals during the quarter
Overall leasing activity witnessed a drop on a quarterly basis
Rental values remained stable
Majority of the deals were reported in Kakkanad in SBD, followed by a few deals witnessed in development on MG Road in CBD.

Office leasing activity is expected to sustain in the short-term, backed by companies looking to expand or consolidate their operations. However, we expect leasing activity to be marginally impacted in the medium to long-term. Due to a deficiency of space in core micro-markets, we expect occupiers to continue moving towards supply-laden peripheral locations, particularly in cost-effective investment grade developments. We also expect an increase in share of leasing by other prominent sectors such as BFSI, Engineering & Manufacturing and Research & consulting.  On the supply side, a significant quantum of space is expected to be released in the decentralized locations of leading cities over the next few quarters. Additionally, with respect to tenants, infrastructure improvements will be a critical factor for occupier location strategy. Pre-leasing activity will continue in quality and cost-effective projects nearing completion.


About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.  Please visit our website at www.cbre.com.



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