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Demand for office space in 2012-16: 180 mn sq. ft

Business

Global real estate consultant, Cushman & Wakefield estimates commercial office space demand of over 180 million square feet (msf) in the next five years (2012 – 16) in the top 8 cities[1] of the country. This was released in the annual publication entitled “Evolving Paradigm – Future of Indian Real Estate” in association with Global Real Estate Institute (GRI) at their India Summit 2012. The report also estimates the total expected supply for the next five years in these eight cities as 219. 6 million sqft, basis announced projects and current pace of construction; indicating a condition of excess supply in the coming few years. 

The highest demand will be recorded in Mumbai with an estimated 44 msf over the next few five years followed by Bengaluru (31 msf) and NCR (27.8 msf). The top three cities will constitute approximately 57 per cent of the total office space demand. Ahmedabad will record the lowest office demand of approximately 7.8 msf in the next five years, while Kolkata will be finish one but last with demand of 8.4 msf.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, “Based on expected recovery of the economy, partly due to global recovery, but largely due to the positive signals being sent out by the Central Government to promote business investments, office space demand is expected to witness a positive growth of 10 per cent in 2013 and 20 per cent in 2014. This is, however, likely to reduce over the next two years (2015-16) drawing from the forecasts that predict a slowdown in global GDP.”

Sanjay continues, “A number of factors will act as catalyst for the growth and sustenance of office demand such as improvements in infrastructure, connectivity and the quality of supply. Additionally, more and more companies are looking at rationalizing their real estate portfolio by relocating and/or consolidating their wide-spread operations, besides actually growing their businesses. This is expected to lead to an increase in leasing activities and also add to the net absorption. Cities such as Bengaluru, Chennai and Pune, which are expected to witness lower demand-supply gap, may also see moderate rental increases over the next 5 years. On the other hand, NCR, Mumbai and Kolkata that have considerable oversupply may see rental correction in select micro markets during that period. Rental correction will not take place across the board as local micro-market dynamics such as location, quality, existing occupier profile, access to transportation nodes, etc will play an important role in deciding the rentals vis-à-vis the demand from occupiers.”

Mumbai is also expected to see the highest supply in the next few five years with an estimated 52.6 msf of fresh office space supply followed by NCR (43.8 msf) and then by Bengaluru (31msf) in the next five years. The office market is expected to be oversupplied by approximately 21 per cent in the period of 2012 – 16. The demand to supply gap is expected to be the highest at 40 per cent in 2012 but will reduced to 6% by the 2016. In the period of 2012 – 16, Bengaluru is expected to have to lowest demand – supply gap with supply exceeding by less than 1 per cent , while Kolkata will have the highest gap 64 per cent with supply exceeding demand. NCR and Mumbai will also experience a high demand – supply gap of 57 per cent and 19 per cent respectively, where supply will exceed demand. Chennai and Pune are among the cities to see lower demand – supply gap with supply only exceeding by 2 per cent and 4 per cent respectively.

The cities of Ahmedabad, Chennai and Hyderabad are expected to see steady increase in both supply and absorption during 2012 – 2016 due to demand from sectors such as manufacturing and services sector. Most companies in these sectors are likely to be cost conscious in the backdrop of moderating economic growth and increasing costs and thus choose locations which offer relatively lower rents. The Western Indian cities namely Ahmedabad and Mumbai are expected to see the double digit growth in absorption levels in the five years horizon, while, growth in absorption levels in most other cities will not breach 5 per cent annual growth during the period, states the report.

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