Driven by the increased demand from GCC (global capability centres) and rising demand from Indian corporates, commercial space leasing in India is up 41 per cent to 66.7 million sq ft (msf) for the Jan – Sept period (Q1-Q3 of CY 2024), says, Veera Babu, MD, Tenant Representation at real estate consultancy firm, Cushman & Wakefield. Net absorption is up 51 per cent on y-o-y basis.
Rentals, up 7 to 10 per cent, are now higher than pre-Covid levels, driven by a combination of factors like short supply of Grade A spaces in key markets, increased back to office trends in select markets, and a general increase in demand.
In an interview to businessline, Veera discussed the commercial space leasing outlook, trends, and rental and supply trends for the coming months.
How has commercial space leasing played out?
The segment is doing pretty good compared to the last year. For 2024, the guidance is to surpass 80 msf of gross leasing space. As of Q3, we are at about 66.7 odd million sq ft; and net absorption, it is about 33.9 million sq ft, up 51 per cent (vs 22.6 million sq ft).
What has been the rental movement like on a Y-o-Y basis?
Rentals moved up and are higher than pre-Covid levels now, primarily on the back of pent-up demand and supply constraints.
On an average, there is like a 7 – 10 per cent increase in rentals where there is a demand – supply mismatch or in micro-markets which have done extremely well or have space constraint now. And then, there are markets where maximum increase is 5 – 6 per cent because of high vacancy levels.
Can you elaborate a bit on the market specific price and supply movements?
For instance, vacancies in Mumbai are at 15.80 per cent for as against last year when they were close to 20 per cent; and in comparison rentals are up to ₹131.17 per sq ft, an increase of 8.2 per cent y-o-y (vs ₹121.20 per sq ft). Against this, supply in Mumbai increased 360 per cent y-o-y from 1 msf to 4.6 msf. So there is demand.
In Delhi – NCR region, supply is up 70 per cent to 3.4 msf in Q3 (vs 2 msf a year back), rentals are up 4 per cent-odd to ₹66.80 per sq ft. Vacancies down by 100 basis point to 22.88 per cent or so on y-o-y basis.
For Bengaluru, rentals had a less than 2 per cent increase to ₹83.80 per sq ft (vs ₹82.70 per sq ft), but supply increased 23-odd per cent to 9.7 msf. Vacancies are down 9.70 per cent, from 11.40 per cent.
Chennai is another example, where supply is down by 65-odd per cent to 1.2 million sq ft and vacancies are at 16 per cent or so. Rentals there saw an over 16 per cent growth.
Why is this rental movement not so secular?
What happened post pandemic, a lot of companies shied-away from taking spaces because of the uncertainty especially around people are coming back to office. But, there was pent up demand.
Compared to the global scenario where companies struggled to bring people back to office, it was different in India post-pandemic. Lot of people are back to office especially in markets like Mumbai. And in other cities the return is happening pretty faster too.
Also, post-pandemic, Indian clients grew substantially and the second was US multinationals - who stayed away in the beginning of 2020 - were coming back in 2023. In 2023, leasing was 72 msf. And return has been further robust in 2024. This is one reason for rentals moving-up.
If you go back in 2019 - which was the highest ever leasing and capacity addition to have happened just before pandemic - a lot of people started construction activities, driven by demand outlook. But because of the pandemic, they stalled construction. This led to supply constraints in core markets.
By when do you expect supply to be back on-track?
In certain markets, supply is not going to be better until 2026 or 2027. A lot of supply was pumped-in across India in non core markets.
For example, you take Noida which has double digit vacancy. But when you look at the Gurgaon vacancies, they are in low single digits – the two are part of the same Delhi – NCR zone. Similarly, there is no space available in Delhi. And because of that, a lot of supply will bebuilt in Noida.
And who are the buyers?
One, the the GCCs.; and the other being Indian companies that have grown significantly.
From the previous years, say 2017 or 2018, the US multinationals would make-up for 80 per cent of the leasing and the remaining 20 per cent by Indian companies. Indian companies mostly operated from Grade B spaces. But today, GCCs coming into India have also increased significantly; while capex by Indian companies as well as hiring are up significantly.
It is at 50:50 mix of GCCs and Indian companies mostly.
What led to GCCs coming to India?
In the past, they used to come to an Indian service provider, experiment with with 300 seats and so on. But, a lot of that changed. They are setting up their own centres given the entire political system which is available within India, the changing image of the country and an ease of doing business here.