Net Absorption of Commercial Office Space in India Projected to Surpass 39 mnsq ft by 2020

JLL, India’s leading real estate professional services firm, along with Confederation of Indian Industry (CII) today released a report that outlines the growth and recent trends in the office sector in India. The report forecasts that net absorption in commercial office segment across India will exceed 39 mnsq ft by 2020 on the back of strong supply pipeline and stable vacancy levels. With demand for co-working office space increasing over the last few years, the report highlights that absorption by service providers has tripled to 3.44 mnsq ft in January-September 2018 period. In the year-ago period, the co-working space absorbed was 1.11 mnsq ft. Titled ‘Emerging Trends in India’s Office Sector – Occupier Perspective’, the report was released at CII Facilities Management Conclave & Expo 2018 event held here today. While the net absorption in 2017 declined marginally to 28.7 mnsq ft, projections suggest robust performance in 2018 at 33.3 mnsq ft. According to the report, the office market pan-India is likely to see completions ranging from 38-45 mnsq ft every year till 2020 indicating a strong supply pipeline. From the vacancy perspective, the outlook is quite positive. Vacancy declined by 30 bps to 13.7% in July – September quarter of this year compared with 14% recorded in the preceding quarter due to higher demand and lower completions recorded across India. Driven by steady absorption projection, overall office sector vacancy is likely to gradually come down in the medium term (2018-2020), the report states. With non-IT/ITeS companies emerging as major demand drivers, the report shows that companies in manufacturing/industrial segment in Bengaluru, Delhi-NCR and Chennai have been leading in office space take-up from 2013 till July – September quarter of this year. In Mumbai and Pune, BFSI companies have led in office space absorption. Of the total non-IT/ITeS space absorbed by different sectors, substantial space has been taken up by the emerging co-working sector as an increasing number of office occupiers/tenants have started considering shared space as a preferred option for office operations. In fact, share of co-working sector in total office leasing more than doubled to nearly 10% in the first nine months of 2018 compared to 4% year ago. Co-working Segment The report also covers the proportion of co-working sector in total office leasing across six cities of Bengaluru, Mumbai, Delhi NCR, Chennai, Hyderabad and Pune. According to JLL data, Mumbai’s share in total office leasing in co-working sector tripled to 21% during January – September 2018 compared to 7% in the corresponding period of last year. Bengaluru and Delhi NCR are the other prominent markets that saw their share growing by over three times. According to Ramesh Nair, CEO and Country Head, JLL India, “Last few years have seen exponential growth of co-working as a concept across major office markets in India. The concentration of co-working spaces is expected to intensify further in Bengaluru, Mumbai and Gurgaon due to the availability of infrastructure and a vibrant start-up ecosystem. In times to come, some tier II and III markets are also expected to witness emergence of co-working hubs.” The report further states that nearly 40-45% of the demand for co-working space comes from corporates and large enterprises. Of the balance, small and medium enterprises along with individual professionals contribute 35-40% of the demand with 15-25% from start-ups. Also, a co-working space is likely to lead to cost savings of 20-25% in markets like Delhi NCR, Mumbai, Bengaluru and Pune compared with leasing a traditional office space. Currently, there are around 350 co-working players/service providers operating an estimated 500 shared workspaces across the country, compared with less than 30 in 2010.   Technology and Workspaces The report also explores the impact of technology at workspaces that is leading to higher employee engagement and attracting talent. Incorporating technology across the lifecycle of a workplace enhances the efficiency by 20% in terms of space utilization. “Technological disruptions are affecting the way companies conduct their businesses globally. Today, almost 90 percent of C-suite leaders anticipate digital trends to disrupt their industries to a great or moderate extent. Commercial Real Estate heads will need to adapt their workplace strategies to this new reality,”said Sandeep Sethi, Managing Director, Integrated Facilities Management – West Asia, JLL India. Highlighting the growth of FinTech sector and its impact on the real estate sector, the report emphasizes that FinTech tech start-ups have pushed demand for low-cost and alternative office spaces. Increase in integration of FinTech firms is encouraging corporates and occupiers to take up office spaces in energy efficient buildings, with modern technology infrastructure. With steady demand for office space from e-commerce firms, the report estimates space absorption by e-commerce sector stabilizing at 6-7% levels for 2018. E-commerce players are also considering co-working spaces for some of their operations due to flexibility and cost savings offered by them. With the concept of sustainability and green buildings gaining traction, the report focuses on a new standard of holistic ‘Wellness’ for office buildings. Called WELL Certification, the concept aims to address workplace environment by enhancing health and wellness of employees. WELL Certification offers significant benefits including, attracting tenants capable of paying a 5 - 20% premium on existing market rent and 30-45% rise in possibility of signing mid to long-term lease contracts.