July 25, 2018

Indian office property market clocked the highest half-yearly leasing transaction volume in 6 years with 21 million sqft of space leased across seven major cities in the country in the first half of 2018. The segment showed a robust growth at 13% on-year, said a recent report by Knight Frank India.

This was mainly led by increasing leasing by other services sector including consulting firms. Co-working service providers account for 13% of total transacted space, an emerging trend, while the share of Information Technology/IT-enabled services declined on over all leasing.

"The office sector has been doing very well with the vacancy levels at near zero level in many cases and the rentals steadily moving upwards. This includes the most sought-after locations in Mumbai though at 21% the overall vacancy rate may sound high," said Shishir Baijal, Chairman & Managing Director, Knight Frank India.

Bengaluru continued to lead leasing activity across India in the first half of year 2018, with Pune experiencing maximum growth in transactions at 118% during the same period.

The report also mentioned that most Indian cities experience strong positive rental growth. Bengaluru witnessed growth at 17% year-on-year, while greater share of relatively lower priced business districts leads to reduced rentals for Mumbai.

New completions of office space remain subdued, down 10% on-year during January to June quarter of 2018. "New completions continue to be inadequate in the face of robust transactions, keeping vacancy levels low; Bengaluru leads southern region with lowest vacancy," added the report.

However, the residential market remained subdued across the country with stagnate sales despite increased launches, reduced prices, government reforms and incentives. New launches saw significant jump by 46% on-year during the first half of 2018.

"The turbulent times that we have experienced starting from November 8, 2016 to the changes that have happened in 2017 have really shaped the way the residential market is moving ahead. This coupled with cities like Mumbai, where the ban on construction took place and Delhi, where the NGT (National Green Tribunal) ruling happened, has really stalled the entire industry." said Baijal.

Mumbai and Bengaluru, the largest markets, accounted for 56% of total supply during the first half of 2018. These markets experienced a significant rise in the share of units launched in under Rs 1 crore and Rs 50 lakh, respectively over the first half of 2016.

However, with the forthcoming general elections, high inflation and interest rates slowly inching up, a lot uncertainty still exists in the market. It could perhaps still be a rocky way ahead for the real estate industry.

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