According to Jones Lang LaSalle Meghraj, commercial office space absorption has witnessed a major upswing in Mumbai, Hyderabad, Bengaluru and the National Capital Region during the first quarter of 2010

The Indian commercial real estate market, which remained under the bad spell of the global economic recession for a prolonged period, is finally witnessing an upswing in demand, since the first quarter of 2010. Industry experts and realty analysts opine that the current surge in demand for both office and retail space is expected to continue over the coming months, primarily on account of a large number of new companies considering offshoring to India for the first time.

“There is no doubt that commercial leasing activity in the country has moved up over the last 2-3 months, on the back of evolving interest from new generation companies to offshore/outsource to India,” says Nandakumar O P, general manager (business development) of Prestige Estates Projects Ltd, a reputed realty firm headquartered in Bengaluru.

Mr Nandakumar further added that rental rates, which dipped 20-25% last year, are currently witnessing a rise. The Bengaluru commercial market has already recorded healthy absorption rates from the beginning of 2010, which eventually led to around 10-15% hike in rental rates in the city.

Observations from JLLM

According to global property consultant, Jones Lang LaSalle Meghraj (JLLM), commercial office space absorption has witnessed a major upswing in tier I cities such as Mumbai, Hyderabad, Bengaluru and the National Capital Region (NCR) during the first quarter of 2010.

JLLM further added that of the total 60.9-million square feet (mn sq ft) office space, which is likely to commence operation during 2010 across seven cities in the country, around 74% of the supply will be dominated by four tier I cities (including Chennai, Mumbai, Bengaluru and NCR). The other three cities comprise Pune, Kolkata and Hyderabad.

“Driven by increasing demand from sectors such as banking, financial services and insurance (BFSI) and IT/ITeS, office space absorption rate has further picked up across cities in India. In 2009, the demand for office space was primarily dominated by sunshine sectors such as telecom and pharmaceuticals,” says a senior official of JLLM Pune, who did not wish to be named. He further added that the IT/ITeS firms are largely considering registering significant spaces in suburban micro-markets on account of reduced rental rates.

In addition to this, the current competitive global business environment is prompting several new generation firms to consider offshoring/outsourcing for the first time in India, points out JLLM.

Currently, the vacancy rate in Grade A office space is around 18.1% as on March 31, 2010, while Grade A retail space vacancy stood at 17.5% during the corresponding period. These figures, which hold true for seven Indian cities (comprising Chennai, Mumbai, Kolkata, Pune, Bengaluru, NCR and Hyderabad), are comparatively much less when compared with previous years’ figures.

Of late, the commercial retail market is also moving up, following considerable increase in enquiries from retailers. In view of the improving market conditions, both domestic and international retailers are once again considering their expansion plans at the home turf in the coming 2-3 years, which in turn is strengthening the commercial retail absorption rate in the country.

Jeeta Bandopadhyay