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Office space absorption: Chennai only city in top 8 to see growth this year

T E Narasimhan & Vinay Umarji / Chennai/Ahmedabad 04 Oct 17 | 01:11 AM

(Photo courtesy: WeWork website)

Among the top eight cities in India, only Chennai reported a rise in net absorption of office space, with a 60 per cent jump for the January to September period.

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According to the latest market report by Cushman and Wakefield, unlike Chennai, the rest top seven cities registered a decline in net office space absorption. Hinting at rising vacancy levels in office space, cities like Ahmedabad, Bengaluru and Kolkata saw steepest fall in net absorption at 37 per cent, 17 per cent and 15 per cent, respectively, for the said period. 


In all, net office space absorption in the top eight cities was recorded at 18 million sq ft (msf) for the first nine months of 2017, registering a decline of seven per cent year-on-year.


On the other hand, in terms of supply of office space, Kolkata was the only city among the top eight to post a positive growth between January and September at a whopping 238 per cent, whereas Ahmedabad, Mumbai and Pune posted the steepest fall. The three cities saw fall in office space supply at 86 per cent, 56 per cent and 51 per cent, respectively, as compared to the same period last year.


Across the major eight cities, the supply of office space remained constricted with a drop of 38 per cent, according to the report. 


The Chennai market witnessed robust activity in the last few quarters, registering a steady growth quarter-on-quarter due to an increase in interest from occupiers, according to Cushman and Wakefield.


Chennai gives the added benefit to occupiers of a rife talent pool in the area. Absorption in Chennai has been led by sectors such as e-commerce, information technology- business process management, and banking, financial services and insurance. As a result of this positive trend in office absorption, Chennai has seen a significant drop in vacancy, bringing it down from 15 per cent in 2015 to nine per cent in 2017, said Cushman and Wakefield.


The trend for office space absorption has been looking positive despite a seeming slowdown in the early part of 2017. 


Bengaluru continued to register the highest volume of transactions, with approximately 5 msf of net absorption, while Hyderabad registered the second-highest volume of net absorption at 3.2 msf, although both registered a decline from the same period last year.


However, Mumbai has emerged as the most stable market from a net absorption perspective in 2017, registering a total net absorption of 2 msf. The market has been receiving steady demand from sectors such as IT/BPM, consulting, BFSI, health care and media. Delhi-NCR, too, saw a manageable decline of three per cent y-o-y in the year-to-date net absorption despite a drop in supply of office space.


Nevertheless, Anshul Jain, managing director, India Cushman and Wakefield, stated that the market has entered the second half of 2017 with a positive outlook, with occupiers absorbing and pre-committing greater volumes of office spaces. 


"Almost 30 per cent of the total net absorption for 2017 took place in the third quarter of the year and going by the previous years' trends, another 30-35 per cent is expected to be recorded in the last quarter of the year. Hence, we expect to see close to 12-14 msf of additional net absorption in Q4 2017. This means that 2017 remains on track to record net absorption similar to last year at around 30-32 msf," said Jain.

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