Office leasing market to see strong traction this year, says Colliers

Office leasing market will stay abuzz on the back of economic growth. However, absorption levels are unlikely to grow further as flexibility, collaborative workspaces, workspace efficiency, employee retention and cost-effectiveness emerge as key trends.

"We expect that the office leasing market will remain robust in 2018 and over the subsequent few years, reflecting strong employment growth and economic reforms. However, we do not expect the absorption level to grow further despite strong demand," said a report by Colliers International India.

Factors such as the quest for workspace efficiency and the advent of flexible office space may hold down overall absorption volumes, it adds.

Surabhi Arora, senior associate director of Colliers International India, said, "We expect the Indian economy to grow at above 7% over the next three years and recover fully from the adverse repercussions of demonetisation and implementation of goods and services tax (GST). We advise developers to reformulate their workplace designs to cater to the changing dynamics of the workplace environment."

There is also a possibility of automation and artificial intelligence having the potential to disrupt the Indian property market significantly. According to Colliers, the impact from the same will be felt over medium to long term.

Around 90 million square feet is under various stages of construction, which will lead to the total stock rising 17-18% by the year 2020 and the vacancy rate is expected to remain stable because of the demand complementing the supply.

The demand for office space will primarily be dominated by technology, engineering and banking sectors, and co-working and warehousing will also gain traction, Colliers has forecast.

The report also said that premium building (Grade A) rents will continue in the upward growth trajectory across markets "We expect an average annual increase of 4-5% over the next three years. The price should increase by 2-3% over the next three years as investor activity is set to rise."

The demand for Grade A office space was primarily from the technology companies followed by engineering, manufacturing, banking and finance and co-working operators.

Last year, 42.8 million sq ft of office space was leased, excluding renewals and pre-commitments, which is marginally up from 2016 absorption level of 41.6 million sq ft.

In 2017, Bengaluru remained the front-runner in office leasing with over 15 million sq ft, thereby having 36% of market share followed by National Capital Region (18%), Mumbai (13%),Chennai (11%), Hyderabad (10%), Pune (8%) and Kolkata (2%).