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2015 proved to be a solid year for office market aptly supported at the macro economy level. As per Colliers India’s research, the year recorded about 40.21 million sq ft office space lease transactions excluding pre-commitment of another 3 million sq ft in India’s eight major cities. This was about 15% more than the absorption in 2014. New construction continued to trend upwards, reaching nearly 32 million sq ft in 2015, up from 24 million sq ft in 2014.

The occupier group made some bold decisions and India finally witnessed some big ticket deals like; ‘Wells Fargo’ taking 0.8million sq ft in Bengaluru; ‘Snapdeal’ taking 0.5 million sq ft in Gurgaon; Abbott 0.4 million sq ft in Mumbai; ‘Yes Bank’ taking 0.4 million sq ft in Chennai and‘Siemens’ occupying 0.3 million sq ft in Pune. The demand was primarily driven by technology sector while e-commerce emerged as a significant contributor of this demand within this sector.

Bengaluru, with about 13.43 million sq ft of office absorption and 12.85 million sq ft of new construction continued to hold its number one position across cities. Mumbai and NCR office transaction volume reached a post-recession high of 6.57 and 9.10 million sq ft in 2015, witnessing an increase of 111% and 18% from last year, respectively. Pune and Kolkata shared 12% and 2% in the total office absorption.

“High levels of tenant activity was evident in India in the last two years. Office vacancy in almost all the cities rationalised due to less speculative constructions. As vacancy is expected to fall further, we expect marginal increase in rents and lowering incentives by landlords in certain micro markets, especially in Grade A buildings. We are watching various factors that will support the office market in 2016 such as positive corporate occupier’s attitude; improved economic sentiments; controlled inflation; decreasing interest rates; improvement in manufacturing sector and increase in software export are few of them.” says Surabhi Arora, Associate Director, Research at Colliers India.

The real estate space is likely to receive ample support from the government with initiatives like rationalisation of the capital gains tax for REITs and InvITs, subject to payment of Securities Transaction Tax (STT), relaxation in FDI norms for real estate sector, inclusion of CRE in the ambit of Real Estate Regulatory Authority (RERA) bill, etc.

The combination of positive economy, stronger job growth prospect and limited and targeted construction activity bodes well for the market in 2016. Occupiers across all sectors will continue to become more space efficient, doing more with less space as their leases come up for renewal. But as hiring activity is expected to increase further, firms will need more space to house additional workers.

The office real estate market in 2016 is expected to be at par with 2015 in terms of office absorption though capital and rental values are likely to remain stable. Nevertheless, for Grade A office space, rents are expected to strengthen for quality office space in almost all the micro markets.

Source: Colliers International

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