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Rediff.com  » Business » SHOCKER! Office space vacancy hits 5-year low

SHOCKER! Office space vacancy hits 5-year low

January 19, 2016 08:48 IST

Mumbai skyline38 million sq foot space absorbed in top 7 cities last year; Bengaluru hottest market

Between this year and the next, the vacancy in office spaces across the country is expected to see the sharpest fall in the last five years, thanks to lack of supply and rising demand.

According to property consultant JLL, the vacancy in office spaces is expected to be around 13 per cent.

It was around 18.5 per cent in 2013 and around 15 per cent last year.

“After vacancy levels went up in 2011, developers stayed away from building commercial properties.

It will take three to four years for new stock to come to the market and vacancy will go down further,” said Ramesh Nair, chief operating officer at JLL India.

According to Nair, if developers’ portfolio in 2011 was 60 per cent residential and 40 per cent residential, it is now 84 per cent residential and 16 per cent commercial.

The demand factor has also played a role.

Companies, especially in e-commerce, telecom and health care sectors, have been snapping up office space across major cities.

This expansion is also reflected in the decline of office space vacancy levels across the country -- a trend that started in 2013.

By 2015-end, cities such as Pune, Bengaluru, Hyderabad and Chennai had a vacancy rate of only 5-12 per cent, JLL said.

Southern cities are seeing a faster decline in the vacancy rate.

Vacancy in Bengaluru has reduced from 16 per cent in 2011 to four per cent.

Chennai’s vacancy has come down from 32 per cent in 2010 to 12.5 per cent.

Hyderabad has also seen it reduce from 17 per cent in 2009 to less than 10 per cent.

In Pune, vacancy has reduced from 18 per cent in previous years to five per cent, JLL said.

Top seven cities witnessed absorption of 38 million sq ft office space last year, highest in the last five years, according to realty consultant CBRE.

Bengaluru led the pack with 32 per cent share while NCR was second with 23 per cent share.

Absorption of office spaces in 2015 was similar to 2011.

However, it was distributed across new and old buildings.

In 2011, demand was largely for the new buildings, Nair said. Leasing of office spaces in Mumbai, the commercial capital, doubled last year.

American firms such as Cisco, Amazon and Indian firms such as TCS leased big offices in the city last year.

"That the commercial demand is on an upswing in Mumbai is fairly established now given the robust uptake in Bandra Kurla Complex and also an equally strong pipeline.

Besides, supply side constraints will only gradually move out. So, both absorption and prices are looking healthy," said Ashish Shah, COO, Radius Developers.

Image: Mumbai skyline. Photograph: Punit Paranjpe/Reuters

Raghavendra Kamath in Mumbai
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