Commercial real estate sector got a big boost in the first quarter of this year. According to a report by CBRE (CB Richard Ellis), demand for office space leasing saw a new high, approximately 8 million sq. ft. in Jan-Mar, 2017 in the top eight cities of India. The Delhi-NCR region in the country spearheaded this demand with 19% of the total share in office leasing demand. It was closely followed by commercial capital of India - Mumbai which accounted for 18% and the start-up hub - Bangalore which made up 18% of the total office leasing demand.
The recent wins of the ruling party in various state and municipal corporation elections have provided a sense of security and stability to the environment of the country. This coupled with various policy initiatives of the central government in the recent past, such as the GST, RERA, infrastructure status to affordable housing as well as huge investment in infrastructure development have made India an attractive destination to do business. Owing to the positive outlook and environment, corporates which are already in India are looking to expand their operations further. All these factors together have led to high demand for office spaces in the country in the current year.
According to the report by property consultancy CBRE, the demand for office space leasing in the first quarter of 2017 saw 8% year-on-year growth. Companies in the IT and ITes sector created the maximum demand for office space, accounting for about 37% share of this total demand of 8 million sq. ft. Some of the other sectors that majorly contributed to this hike in demand for office spaces are manufacturing, engineering and BFSI (Banking, Financial services and Insurance). Domestic companies accounted for 32% of the total demand.
The report further stated that 90% of the total office space demand was for mid-sized and small spaces i.e. less than 50,000 sq. ft. Office spaces less than 10,000 sq. ft. made 43% of the total transactions. This shows corporates' inclination towards smaller office spaces. Demand for co-working spaces is expected to rise exponentially in the future.
Majority of the demand for office spaces is for suburban and peripheral areas of the city, where quality space is available at reasonable prices. Some of the most sought after areas for office spaces are: Gurgaon in Delhi-NCR, Hinjewadi, Nagar Road and Kharadi in Pune, Airoli and Bandra Kurla Complex in Mumbai, Madhapur, Kondapur and Gachibowli (IT Corridor) in Hyderabad, Outer Ring Road, CBD and North Bangalore in Bangalore.
Although, the demand for office spaces has risen, the supply of new office spaces has not been able to keep up and has registered a whopping 60% year-on-year drop during the first quarter of 2017. Supply in Mumbai, Pune and Hyderabad, however, remained more or less steady. A total of 3.1 million sq. ft. of new office space was added during Jan-Mar, 2017.
The high demand for office spaces in the beginning of the year will have a positive effect on the real estate sector overall. Political stability and the appropriate policy decisions are further expected to attract investments in the sector, creating more supply as well as demand. As 45% of the demand for office space in the first quarter was from US based companies, outsourcing policy changes by the Trump Government can be a matter of concern for the real estate sector. All said and done, high demand for office leasing has set the right momentum and the real estate sector is expected to remain strong in the coming months.