Top six cities to witness maximum office space absorption in India

India has been an attractive market for IT/ITES industry as it ensures handsome investment returns. The BFSI (Banking, Financial Services and Insurance) book of the dead game industry, manufacturing and other service sector also contribute to total office space absorption in India.

As per Knight Frank Survey, the top six cities which will witness maximum office space absorption in the country for next five years are Bangalore, Chennai, NCR, Hyderabad, Mumbai and Pune.

Top three cities which attract the maximum amount of investment from the following sectors are:

IT/ITES sector – Bangalore, Hyderabad, Delhi-NCR

BFSI – Mumbai, Bangalore, Delhi NCR

Manufacturing sector – Delhi NCR, Mumbai, Bangalore

Service sector – Mumbai, Delhi NCR, Bangalore

Following tables depict the office scenario in the top business districts along with expected rental growth, capital value growth and investor returns for the period of 2012-17.

Bangalore

IT/ITES sector in Bangalore has a major contribution in the growth of office market of the city. The city has ample availability of talent pool and influx of MNC’s, expansion of domestic firms is hitting the city’s office space market. The economy of Bangalore also has stake of industries like automobile, biotechnology, retail etc.

The total office space stock in Bangalore is 99.3 mn.sq.ft of which 86.3 mn.sq.ft is occupied. IT/ITES, BFSI and manufacturing sector account for 57 percent, 18 percent and 15 percent of the total occupied office space respectively. In next five years, the rentals are expected to remain stable with increase in vacancy level to 12 percent.

As per KF, the estimated rental and capital growth of ORR is 17 percent and 30 percent respectively. The maximum growth estimated followed by PBD (Peripheral Business District)East and SBD (Suburban Business district). The excellent connectivity with major residential areas and good social and physical infrastructure has attracted occupiers in ORR micromarket.

Chennai

The office market of Chennai city has emerged due to growth of sectors like auto and auto ancillary, electronic hardware, apparel and engineering. Availability of talent pool, favourable government policies, lower rentals and excellent infrastructure have pushed robust growth of the IT/ITeS sector.

The total office space stock in Chennai is 49.8 mn.sq.ft., of which 37.4 mn.sq.ft. is occupied. The major sectors occupying industries in Chennai are IT/ITeS, manufacturing and BFSI. There is also a healthy demand of space from service industries like shipping, telecom and infrastructure.

IT/ITeS, manufacturing and BFSI sectors account for 56 percent, 20 percent and 10 percent of the total occupied office space respectively. It is estimated that 25.1 mn.sq.ft. of new supply will enter the Chennai market in the next five years.

As per KF, Central Business District (CBD) and off CBD is estimated to report maximum rental (20 percent) and capital growth (34 percent). The excellent connectivity with major residential areas and good social and physical infrastructure have attracted occupiers in CBD & Off CBD micro markets.

NCR (National Capital Region)

NCR is a prime office destination which is been driven by major offices of administrative and political parties. It consists of Delhi, Gurgaon, Noida and Greater Noida. The office demand is augmented by skilled manpower, conducive business environment, favourable government policies and contiguous land parcels.

The region possesses the largest market in the country with 110 mn.sq.ft. of office stock, of which 88mn.sq.ft is occupied. Major sectors contributing to office space market are IT/ITeS and manufacturing. There is also a good demand of banking, financial services and insurance. IT/ ITeS accounts for 42 percent of the total office space, followed by manufacturing, service sector and BFSI, at 22 percent, 21 percent and 15 percent respectively.

Hyderabad

Hyderabad is home of many IT companies like IBM, Perot, Accenture, CA, HP, GE, Convergy etc. The city has also excellent infrastructural facilities. It has been an attractive IT destination due to massive talent pool, extremely affordable rentals and ample availability of quality real estate.

It has a total office space of 49.1 mn.sq.ft., of which 42.4 mn.sq.ft. is occupied. The office market is majorly occupied by IT/ITES (75 percent) sector followed by manufacturing (9 percent) and BFSI sector (6 percent) Experts say that the city is not expected to see much growth in next five years due to Telangana issue and slowdown in the IT/ITeS sector.

Mumbai

Mumbai is the financial capital of India and also important city from global economic perspective. Few factors which have supported the office market of the city are conducive business environment, availability of rent, quality office developments and international air connectivity.

The office market of the city is majorly driven by BFSI (26 percent) followed by IT/ITES (25 percent) sector. The office stock doubled between 2008 (47.4mn.sq.ft) and 2012 (95.1mn.sq.ft) but the demand remained low. In 2012, the office rentals declined by 10-40 percent with increase in vacancy from 4.3 percent to 23.2 percent

Pune

Pune has evolved as a preferred IT destination over the last few years. The total office space stock in Pune is 43.1 mn.sq.ft. of which 34.2 mn.sq.ft. is occupied. The office market of the city is majorly driven by the IT/ITeS (75 percent) and manufacturing sector (12 percent). Apart from these, there is also a steady demand from service sector including BFSI, consulting, telecom and infrastructure.

Conclusion: Bangalore continues to be the most favourable market for IT/ITES industry while Mumbai remains the centre for the banking and financial sector.Business Districts in Bangalore, Chennai, Pune, Hyderabad and NCR would lag in terms of investor return.

IT/ITES will not ensure superior returns and will continue to be the largest office occupier with an annual growth rate of 11 percent in next five years. BFSI Industry will boost the of office space with a growth rate of 16 percent per annum during 2013-2017.While demand of office space derived from manufacturing and service sector is estimated to grow at 12 and 13 percent respectively in coming five years.

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