Pune office absorption gains momentum; July-Oct leasing tops 1 million sq ft – ET RealEstate

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MUMBAI: Commercial real estate activity in Pune, one of the key information technology and IT-enabled service hubs in the country, has started picking up after witnessing sluggish activity during the lockdown and the ongoing Covid-19 disruption.

The market has recorded absorption of over 1 million sq ft during July to October compared to a 1 million sq ft absorption in the first half of the year until June, showed data from JLL India.

The city witnessed large corporate occupiers renewing their existing office leases as a part of their long term corporate real estate strategies during July to October.

The leasing has been primarily led by financial services and insurance, fintech, Indian and global technology services firms, and co-working space operators.

“Most sectors continue to expand their footprint in the city owing to the diverse and quality talent base, large world class campuses offering competitive rents and the city’s vibrant and cosmopolitan lifestyle. Due to these factors, Pune remains a favorite among occupiers, developers and investors. The deal pipeline for 2021 looks strong,” said Sanjay Bajaj, Managing Director – Pune, JLL.

Average vacancy in Pune during the last three quarters remained range bound and stands at 4.7%–one of the lowest in the country, at the end of third quarter.

Around 7 million sq ft of new supply is scheduled for completion by the end of 2021.

“The initial part of the financial year saw occupiers focusing on business continuity and seamless delivery of services for their global clients, following a cautious approach to committing to larger areas, although, there have been small spurts of demand from multinationals seeking spaces for their immediate needs,” said Vinod Rohira, CEO, Mindspace Business Parks REIT.

According to him, the reduced supply of grade A offices, sub dollar rentals, skilled human capital, increased preference for high quality and safe office spaces, has augured well for key developers like Mindspace, in several markets, including Pune.

Among key transactions in October, global alternative legal services provider DWF Mindcrest leased over 280,000 sq ft of office space at Mindspace Business Parks REIT in Pune‘s Kharadi locality, while flexible office space operator Simpliwork Offices also inked a long-term lease for 230,000 sq ft office space at Sky One Corporate Park in Pune.

The rentals are plateauing in the Pune market offering value driven propositions and opportunities to occupiers.

Moreover, the landlords across the city are more flexible now and open to innovative deal structuring, including incurring capital expenditure towards fit outs on behalf of occupiers. These factors are helping occupiers achieve a more cost-effective cash outflow.

Pune has been attracting large institutional funds and developers as nearly 47% of the city’s grade A office stock is directly or indirectly under the ambit of institutional funds or developers. And an additional 25 million sq. ft. is projected to be added in the next five years.



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Flexible space market to cross 50 million sq ft by 2023: Report – ET RealEstate

NEW DELHI: Irrespective of several short-term disruptions and challenges, increased demand from large enterprises, will support the growth of the flex space market to more than 50 million sq ft by 2023, according to a recent report by JLL India.

The current market penetration of flex spaces into India’s total office stock stands at 3% which is expected to move to 4.2% by 2023.

It is anticipated that flexible space will grow by an average of around 15-20% per annum over the next three-to-four years, although this trajectory will not be linear, said the report.

According to the report, Bengaluru and Delhi-NCR together account for more than 50% of India’s flex stock followed by Hyderabad with 4.5 million sq ft and Mumbai with 4.3 million sq ft of flex office stock. Hyderabad and Pune are among the fastest-growing flex markets.

However, the availability of capital, in the current scenario, will be a challenge. Players who have embarked on aggressive growth so far will find themselves strapped for capital. In such a scenario, the market is likely to witness consolidation activity driven by larger operators with financial wherewithal acquiring smaller ones.

“While the flex-space market more than tripled in the last three years, the momentum going ahead will be relatively slower. Players are likely to tread cautiously, and the overall market is expected to expand 1.5 times from the current size,” said Dr Samantak Das, chief economist and head of research & REIS, JLL India.

Going forward, large enterprises might look at splitting up their offices to reduce commute times and dependence on public transport. However, with expected economic uncertainty, companies will be hesitant to commit large capital to real estate, said the report.

The densification trend that had emerged over the last decade will likely reverse with enterprises leaning on flexible office space to relax space density.



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India office property market shows resilience, Q3 absorption up 64% on-quarter – ET RealEstate

MUMBAI: Indian office property market has shown resilience as indicated by the rising net office take up despite the impact of Covid-19 on the business environment and the emerging challenge of the Work-from-Home model.

Office property markets across the country have witnessed a net absorption of 5.4 million sq ft in the quarter ending September, a 64% rise against the June quarter that was impacted significantly due to the lockdown, showed data from JLL India.

The jump in office absorption is an encouraging trend especially after it dipped almost at a similar rate in the second quarter.

“While we continue to see the impact of the pandemic on various businesses, there is a significant surge in activity across most office markets under consideration. This is seen in gross leasing which more than doubled from the previous quarter at 13.8 million sq ft,” said Ramesh Nair, CEO and Country Head, India, JLL.

At the same time, Nair also highlighted that large and mid-sized occupiers across major markets continue to review their real estate portfolios in a bid to optimize cost and higher emphasis is being given to sustainability and employee well-being as well as adoption of flexible working practices.

While the share of occupiers from information technology (IT) and IT-enabled services segment in gross leasing dipped to 43% in the quarter from 61% in previous quarter, e-commerce and manufacturing sectors gained significant share and supported the market.

Owing to surging demand of e-commerce during the pandemic, occupiers from this sector formed 16% of leasing in July-September as against almost negligible proportion the previous quarter, while share of manufacturing occupiers also rose to 17% from 5% previous quarter.

The third quarter office rebound growth was led by Bengaluru and Hyderabad, which together accounted for nearly 80% of the net absorption. The heightened activity in Bengaluru indicates a gradual resurgence in take up of spaces coupled with the translation of pent up demand from the previous quarter.

New completions during the period increased 59% on-quarter with 9.2 million sq ft of new stock coming to market indicating confidence.

“With lockdown restrictions being relaxed in the third quarter in most of the markets under review, office projects in the final stages of construction or pending receipt of occupancy certificates came onboard. This resulted in an increase in the supply of office space, even surpassing 8.6 million sq ft witnessed in Q1 2020,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.

In sync with net absorption, Bengaluru and Hyderabad led the increase in new completions accounting for 87% of the total new completions during the period. Interestingly, new completions in both these markets even went past the average new completion levels witnessed in the four quarters of 2019.

Increased office space consolidation and optimization strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions. This resulted in overall vacancy increasing marginally to 13.5% from 13.1% in the previous quarter.

Despite the rise in vacancy levels in southern markets, Bengaluru, Chennai and Pune continued to hover in single digits, which augurs well for a robust rebound in these markets when economic and business conditions improve in the coming quarters.

Rentals across key cities remained stable except for Bengaluru that witnessed a marginal increase in rents. Stable rental values and low vacancy levels, the office market in India continues to be landlord favorable. However, owners have also become more flexible in providing increased rent free periods, reduced rental escalation and fully furnished deals to prominent occupiers lowering their net outgo.



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