Amidst the uncertainty generated in the real estate sector due to RERA, GST and demonetization, a ray of sunshine has appeared on the horizon. During the second quarter of 2017, the leasing activity for prime office space, across the major cities of India, has increased 28% compared to the same Apr-June period last year, according to a report by CBRE (Commercial Real Estate Services). The companies have absorbed close to 10 million sq. ft. of office space in the last quarter in the key Indian cities.
The high leasing activity was primarily led by IT, manufacturing, consulting, banking and finance sectors. Both US-based and domestic companies were the contributors. The increase in leasing activity has proved that policy reforms like RERA and GST, though caused fear and uncertainty in the short run, will strengthen the fundamentals of the economy over a period of time. This has brought a positive momentum in the commercial real estate sector, spearheaded by leasing activities in cities like Hyderabad, Bengaluru, Kolkata and the National Capital Region.
Despite the uncertainties amongst corporates, the occupiers in the major cities of India are pre-leasing offices as they anticipate rental escalations in the future. The industry experts are forecasting that office leasing of 'co-working spaces' is expected to rise. Not just start-ups, even established small organizations are taking up this option, instead of a full-fledged office space as it cuts the costs to a large extent.
The IT/ IT-es sector, which is the largest contributor to the demand of office space, has undergone major changes due to the policy of increased protectionism adopted by the Trump administration in the US. Although, India is considered as a prime outsourcing destination, the policies of the new regime can change this in the coming months. There is a distinct possibility that this could bring down the demand for office-leasing in the country. However, as far as the first half of 2017 is concerned, commercial real estate has a lot going for itself.
Looking at the future of office leasing, according to industry experts, it is expected to remain more or less stable with a slight increase in the rentals, across most of the cities. The demand would be fueled by corporates looking to expand their operations in India. Sectors like ecommerce, pharmaceuticals and telecommunications are expected to drive the demand for office leasing along with IT, manufacturing and banking. The supply of new and modern office spaces is well on its way to meet the growing demand, especially in cities like Mumbai, Pune, Hyderabad and Bengaluru, where lots of new projects are coming up this year.